How to Do Bookkeeping for Amazon Sellers: A Simplified Guide
The world of online sales can be both exciting and rewarding, especially when selling on a vast platform like Amazon. However, along with the thrill of generating sales comes the responsibility of effectively managing your finances. A crucial aspect of this is bookkeeping. Bookkeeping is not solely about keeping track of money for tax purposes; it plays a significant role in providing a clear and accurate picture of your business’s financial health.
In this guide, we will break down the process for you, ensuring that you are well-prepared to handle this critical aspect of your eCommerce business. Let’s get started!
What Is Bookkeeping for Amazon Sellers?
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“Bookkeeping for Amazon Sellers” or “Amazon Seller Bookkeeping” refers to the process of recording, organizing, and managing financial transactions related to your Amazon business. It involves tracking every cent earned and spent on a daily basis to get a realistic picture of the financial health of your business. Given the complexity of selling on Amazon, especially for those using FBA, this process can be quite complicated, involving multiple tasks.
Here’s a basic overview of what Amazon seller bookkeeping might involve:
- Tracking Sales: Accurately recording all sales transactions, including dates, amounts, and products sold.
- Cost of Goods Sold (COGS): Keeping a record of the cost associated with producing or purchasing products sold on Amazon.
- Expenses: Recording all business-related expenses and financial transactions, including Amazon seller fees, referral fees, shipping costs, advertising and marketing expenses, and any other operational costs.
- Inventory Management: Tracking the quantity and value of inventory on hand.
- Accounts Payable: Managing amounts owed to suppliers.
- Tax Compliance: Ensuring accurate calculation and payment of taxes, including sales tax and income tax.
- Financial Reporting: Generating financial reports such as profit and loss statements, balance sheets, and cash flow statements.
- Reconciliation: Reconciling bank and credit card accounts with the financial records to ensure accuracy.
Why Is Bookkeeping Essential for Amazon Sellers?
Here’s why Amazon bookkeeping is essential for Amazon sellers:
Effective bookkeeping brings order to your business’s finances. It helps track sales, expenses, and profits, allowing you to understand how your Amazon business is performing. This financial clarity is essential for making well-informed decisions and setting realistic financial goals.
A proper accounting system ensures you are prepared for tax season. It helps you keep track of sales tax, income tax, and other essential financial details required for tax filings. This not only helps you avoid potential penalties but also ensures that you take advantage of all eligible tax deductions, ultimately saving you money.
With accurate records, you can create budgets and financial forecasts. This allows you to plan for inventory restocking, marketing campaigns, and other business expenses. It also helps in securing financing if needed, as lenders and investors often require well-maintained financial records to assess your business’s financial stability.
Evidence in Case of Disputes
In the event of disputes with Amazon, suppliers, or customers, well-maintained financial records can serve as invaluable evidence. These records can help resolve issues related to refunds, returns, or discrepancies in payments. Having a clear financial trail can protect your business and reputation in such situations.
A Step-By-Step Process on How to Do Bookkeeping for Amazon Sellers
Now that you understand the importance and reasons behind it, let’s delve into the step-by-step process of manually managing your Amazon bookkeeping:
Step 1: Choose the Right Bookkeeping Software
The first thing you need to do when handling your own bookkeeping is to choose the right software. Avoid relying on Excel as it increases the risk of errors due to typos or miscalculations.
There are two types of Amazon accounting software that you can choose from: single-entry system and double-entry system.
Single-entry accounting is simple and quick but has limitations. It only records your transactions in one ledger and does not track assets or liabilities, which can lead to errors. It also does not provide much insight into your business performance, making it less suitable for inventory-based businesses.
On the other hand, double-entry accounting is more comprehensive. It allows you to keep detailed records for cash flow statements, income statements, and balance sheets. This method not only helps you gain a deeper understanding of your earnings but also allows you to manage your Amazon business more effectively.
In addition to choosing between these accounting types, ensure that the software uses accrual accounting instead of cash-based accounting. Under Cash-Based Accounting, income and expenses are recorded only when they are received or paid. On the other hand, the Accrual Accounting Method records income and expenses when the transaction occurs, regardless of when the actual money is received or paid. As a result, compared to cash-based accounting, accrual provides a more accurate financial representation.
Once you’ve decided which accounting software type suits you best, ask yourself these questions before signing up:
- Is the software user-friendly and easy to navigate, even for someone without an accounting background?
- Does the software integrate seamlessly with your Amazon Seller Central account, allowing for automatic data import?
- Can the software automatically sync with other financial tools, bank accounts, and credit cards?
- Is the software secure and encrypted to protect your financial data from unauthorized access?
Step 2: Maintain a Record of Everything
Once you’ve selected the right accounting software, the next vital step is to keep a clear record of all your financial transactions. This includes invoices, receipts, bank and credit card statements, purchase orders, and more. These transactions are the foundation of your bookkeeping, so it’s crucial to keep them well-organized to avoid misplacing important financial information. Moreover, in case of a potential audit, having well-documented records is essential, as authorities need concrete evidence.
To effectively manage these records, you have two main options:
Self-Maintained Digital Records
You can keep your records digitally using platforms like Google Drive or Dropbox. Create a simple naming system that includes key details like the date of the transaction, the recipient or vendor, and the transaction amount.
Accounting Software Assistance
Alternatively, you can use dedicated accounting software options like A2X, which can automate the record-keeping process for you.
Step 3: Create a Chart of Accounts
The next step is to create a chart of accounts. This involves categorizing transactions into different accounts to track income, expenses, assets, and liabilities.
A well-structured Chart of Accounts typically has 5 categories:
This category tracks everything your business owns or is entitled to receive. It includes the following sub-accounts:
- Savings Account
- Accounts Receivable (money owed to your business)
This category records your business’s obligations and debts. Sub-accounts for liabilities include:
- Payroll Liabilities
- Accounts Payable (money your business owes to others)
- Accrued Liabilities (outstanding expenses not yet paid)
This section represents the ownership interests in your company. It consists of sub-accounts like:
- Retained Earnings (accumulated profits or losses)
- Preferred Stock (if applicable)
- Common Stock (if applicable)
This account category documents the income generated by your business. It includes all sources of income, such as sales, services, and other revenue streams.
This category tracks the costs incurred to operate your business. It includes various types of expenses, including operating expenses, overhead, and any other costs associated with your Amazon business.
To create your Chart of Accounts, start with your Asset accounts, followed by Liabilities and Shareholder’s Equity. Once these accounts are in place, you can then create your Revenue and Expense accounts. Most bookkeeping software will automatically do this for you. Consider setting aside a designated time each week to review these accounts.
Step 4: Track the Cost of Goods Sold
After you’ve prepared your chart of accounts, the next step is to track the Cost of Goods Sold (COGS) to determine your actual profit. This is the total cost associated with producing or acquiring the goods you intend to sell.
To accurately calculate COGS, you should account for the cost you paid to produce an item along with the cost to bring that item to market. This includes purchase prices, packaging fees, shipping fees, Amazon-specific fees, tariff and duty payments, and other miscellaneous costs.
Most bookkeeping software tools have inventory management features that can simplify this step.
Step 5: Reconcile Your Accounts
At the end of each month, it’s important to conduct a thorough review to ensure that your financial records match your bank and credit card statements. This process is called reconciliation, and it verifies that everything is accurately accounted for.
Step 6: Generate Financial Statements
After all your data is organized and verified, the final step is to generate your financial statements. This includes Profit and Loss Statements (also known as Income Statements), Balance Sheets, and Cash Flow Statements. These reports give a clear picture of your business’s financial health and are essential for planning, decision-making, and tax purposes.
It’s advisable to generate these statements on a monthly or quarterly basis. If you’re using bookkeeping software, this process is quick and easy as the system compiles the data for you based on your recorded entries.
Essential Factors to Consider When Doing Your Own Bookkeeping
Bookkeeping is a crucial part of managing your Amazon seller account. When doing it on your own, you need to pay extra attention to some important aspects. Here are simple tips to help you manage your books effectively:
Separate Business and Personal Finances
To effectively manage your Amazon bookkeeping, it’s important to keep your business and personal finances separate. This means using different bank accounts and credit cards for your Amazon business and personal expenses. This simple practice makes it easier to keep your financial records accurate and organized.
Account for International Sales
If you’re selling in Amazon’s international marketplaces, make sure to account for additional expenses such as foreign exchange rates, international fees, and Value Added Tax (VAT) or Goods and Services Tax (GST).
Moreover, if you’re using various Amazon channels, like selling in both the US and the UK through their respective websites, it’s important to keep separate records of your income and expenses for each of these channels. This way, you can easily track the financial performance of each specific marketplace.
Seek Guidance from a Tax Advisor
When selling your products in multiple countries, you’ll come across diverse sales tax regulations. While accounting software can help in tax calculations, it may not always provide entirely accurate results. To ensure compliance with tax requirements in each location, it’s advisable to consult with a qualified tax advisor. You can start by looking out for recommendations from fellow international Amazon sellers or explore the option of contacting local or international accounting firms with expertise in cross-border taxation.
Stay Updated With Changing Policies
Amazon’s policies and fee structures are constantly changing. To ensure that your bookkeeping practices remain in line with current requirements, it’s crucial to stay updated. You can do this by regularly checking your Seller Central page, subscribing to Seller Central email notifications, or joining Amazon Seller Central forums.
Bookkeeping might seem daunting, but with the right approach, it’s just another part of your Amazon business. By following this guide, you’ll be able to keep your finances in check, avoid tax-time nightmares, and have a clear picture of your business’s health.
Looking for expert assistance in managing your Amazon seller account? Enso Brands offers a comprehensive range of one-stop Amazon services tailored to optimize your performance and maximize your potential on the platform. Contact us today and discover how we can help your business thrive on Amazon!
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