Bookkeeping for Amazon Sellers: What you need to know

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Oct 27, 2022

Bookkeeping for Amazon Sellers: What you need to know

Bookkeeping for Amazon Sellers

Bookkeeping for Amazon sellers is the process of recording and storing the day-to-day financial transactions of a merchant. The terms “sales,” “purchases,” “shipping charges,” “debt payments,” and “advertising spend” are all examples of everyday financial transactions. In the next section, we will discuss why maintaining accurate books is crucial to a firm’s operation.

Why Are Accounting and Bookkeeping So Important?

There are several reasons why bookkeeping is vital for businesses that sell on Amazon. Still, we’ll begin with one of the most important ones: Keeping track of the financial operations enables you to evaluate how well the company is doing over time.

Do you know, for instance, how much money the company has gained from a profit? What really matters is how much money it made, not how much revenue it brought in through sales.

Remember that profit is the term used to describe the remaining money after subtracting all other expenses. When you maintain the books in order, determining the profits becomes simple. If you don’t know how much (if any!) profit the company is earning, it will be impossible to evaluate the company’s health and long-term viability if you don’t have this data.

What Are the Most Important Advantages of Selling on Amazon?

Keeping accurate books and records offers several significant advantages that most Amazon sellers are entirely unaware of.

To begin, if you ever decide to apply for a loan for the company, the creditor will require you to give them various financial details. If the books are correct and up to date, this won’t be difficult to accomplish at all. It won’t matter if you haven’t been keeping track of this information or if the records are inaccurate.

Two, if the client ever decides to sell the company, the purchaser will want to look over the financial records. Again, if the books are properly maintained, this will not be a problem for you; however, if they are not, it will be a nightmare.

Services of an Amazon Accountant – What’s the Need?

The accessibility of these benefits requires significant effort, although each of these advantages sounds fantastic. Accounting is challenging for any type of company and should only be handled by trained specialists knowledgeable in the field.

Far too many business owners and Amazon sellers try to get by with cloud-based accounting software or services and do their best to keep things organized, but they fail miserably more often than they succeed. This typically leads to errors in accounting as well as incomplete records.

Taking a do-it-yourself strategy will force you to scramble whenever you need anything to generate new papers and locate the ones you already have. Because of this, dealing with accounting becomes even more of a chore, generating great anxiety during tax season.

You cannot accomplish something of this nature on your own at this point in time. You can either attempt to handle your own bookkeeping by pulling reports from your Amazon Seller Central account or search for the most effective accounting software available.

However, if you are serious about keeping your business above board, maximizing your deductions come tax season and, tracking sales tax, maintaining an accurate understanding of your financial health with the proper accounting system. Impressing potential buyers or lenders, you should trust a certified public accountant (CPA) or an agency with experience in the field.

First things first, let’s go through how to get off to a good start.

Getting started with Amazon’s financial management software and the company registration process. Getting set up correctly from the very beginning is at the top of the list of recommendations provided by our specialists and vendors. What exactly does this entail?

It signifies two different things:

Registering your business

Many Amazon businesses have humble beginnings as hobbies but have grown into lucrative enterprises.

Because of this, it can be tempting to put off registering a company and paying taxes in the beginning stages of business operations. However, this is not the most effective strategy moving forward.

If something goes wrong with your business, registering it can shield you from specific responsibilities and allow you to keep your business revenue distinct from your personal income. As the company owner, you are responsible for meeting all your financial and legal obligations.

It is in your best interest to register your company regardless of whether or not you believe it is prepared for the change.

A valuable piece of advice is to search for the most recent information continually. Do not let yourself be surprised by unexpected obligations, especially regarding the sales tax that applies to online shopping. Having an eCommerce accountant to help you out is beneficial, even if it’s just at the beginning of your business venture and not for the long haul.

Taking your Amazon accounting to the cloud

Spreadsheets and paper-based systems, although they are cost-free and simple methods for getting started, are only helpful for managing relatively limited volumes of data. And even with that, it’s a time-consuming process that’s rife with opportunities for error.

If you are serious about Amazon selling, ensuring that your systems are robust enough to handle larger transaction volumes without problems is essential. If you are serious about Amazon selling, it is essential to ensure that your systems can handle larger transaction volumes.

When proper accounting procedures are followed, closing the books does not take any more time, and the information produced is far more accurate.

In the past, digital accounting systems were run on servers and company PCs, necessitating regular backups and updates to the corresponding accounting software. These days, most accounting systems are hosted remotely in the cloud.

Because of this, there is no need to create multiple accounts, update software, or even download software in the first place. You can access your books from any location in the world when you use cloud accounting services, and you can securely transmit information when required.

A helpful hint is that there are solutions available for accounting software that can start small and grow with you. This means that your initial investment does not need to be prohibitively expensive. When it comes to your Amazon accounting needs, you should investigate what QuickBooks, Xero, and Sage have to offer.

Getting organized: Amazon business planning

An Amazon business strategy will benefit you in many ways, including your accounting, which is only one of those methods.

A well-thought-out business plan will assist you in harmonizing your objectives, finances, and strategies. They serve as a sounding board through your company journey, can be altered over time, and provide a nice place to begin, which you can look back to and use to gauge your progress.

To summarize, having a business plan can assist you in formulating strategies and organizing for both the now and the future of your company.

Your Amazon documentation is another thing that requires your attention to detail and organization. A helpful hint is to detail exactly what you have to keep track of in your Amazon accounting in the portion of your business plan dedicated to the financials. This will help you prepare precisely what information Amazon will send you that you will need to retain in a safe location. More importantly, it will allow you to spot any gaps in the information you will need to fill in yourself in the future.

Regular checks to avoid mistakes

You must always keep your personal visibility and comprehension of your financials, even if you are using an optimized accounting stack, which is something we will discuss in the following section.

So let’s make a night of it, shall we? And make it a consistent practice, not just once a month.

Checking in once a day or a week doesn’t have to take more than ten to twenty minutes time, but it’ll help you keep track of the performance of your business. You’ll become more aware of any problems more quickly, and have a better sense of any patterns.

The world of online retail is frenetic and cutthroat, prone to rapid change, and demanding one’s full attention. You can save time and improve your familiarity with your company if you manage your accounts in chunks consistently.

Important advice: Don’t include the cost of your merchandise in your expenses! This is a mistake that frequently occurs in Amazon’s accounting. If you get everything set up correctly from the beginning and check in on it frequently, you should be able to solve problems like this one before they become more serious.

Optimizing your Amazon accounting automation: Getting to the next level

Integrating the accounting software you use with Amazon with Seller Central is a fantastic method to transfer data instantaneously between the two platforms. However, to make efficient use of that data, large amounts of human labor and calculations are required, not to mention accounting expertise, which many online retailers do not possess.

As a seller on Amazon, keeping the books sometimes becomes an increasingly difficult task as it requires a significant amount of time and is rife with inaccuracies:

Getting help: Free Amazon seller accounting resources

Utilize the variety of helpful information that is available online to give yourself the greatest possible opportunity of succeeding with your Amazon FBA accounting.

What Characteristics of Amazon’s Bookkeeping Set It Apart From the Majority of Other Businesses?

The accounting for Amazon is most effectively handled using an accrual system, in contrast to the majority of other small firms, which operate using a cash basis:

Bookkeeping for Amazon Sellers

The issue with accounting on a cash basis is that it’s possible to buy inventory weeks or months before you sell it. Then you don’t get paid for it until at least two weeks after it’s been sold and sent. This can be a significant delay. When using the cash basis of accounting, it is possible to have months that appear to be very profitable or very unprofitable.

Accounting based on accruals brings this into balance by synchronizing the timing of sales with when products are dispatched. This means that we record the entire amount you sold in a month, even if you haven’t yet received payment, and we match it with the cost of the things you sold, although you may have purchased them a long time ago. In this method, you can determine, for each product you sell, whether or not you are generating a profit!

To demonstrate how this can have an impact in the real world, the following is a side-by-side comparison of the same company’s earnings over the course of two months when viewed from either an accrual basis or a cash basis:

A significant investment in inventory is made during the first month of the contract, which results in a negative cash flow for the whole period. When looking at the cash side of things in the second month, no inventory was acquired, making the firm appear insanely profitable. However, neither month provides a remarkably accurate representation of what is being placed.

On the accrual side, the sales appear to be higher because we include the total sales before Amazon fees, we show the fees, and the COGS (cost of goods sold) is tied directly to what products shipped that month, not what was bought in that month.

This causes the sales to give the appearance of being higher. As a result, the month has a healthy profit. The second month has a similar layout to the first, but you can see that Amazon fees and COGS have increased slightly, which is a reasonably typical variation from one month to the next. If you don’t do it based on accrual, though, you won’t be able to find out what’s going on with the firm or obtain a good comparison of your month-to-month performance based on apples-to-apples.

When operating an Amazon-based firm, it is critical to manage COGS accurately and take advantage of landed costs whenever possible. One of the single most significant costs for an Amazon seller is often the cost of goods sold. When calculating the actual cost of selling the merchandise, you need to consider the price of the item being sold and any additional expenses paid in transporting the item to the Amazon fulfillment center (things like shipping, duties, fees, etc.).

Because of this factor’s direct impact on the company’s overall profitability, one of the primary objectives is to bring the cost of each individual unit as close as possible to the “all-in” total cost of selling the product. Keeping tabs on them all using a spreadsheet shouldn’t be too difficult if you only sell a few different items. You may wish to switch to using inventory management software as you begin to carry more SKUs. This software can assist you with this work and keep you on track.

If you have more than one sales channel, you need to ensure that you are keeping track of your income and expenses in a manner that is specific to each channel (Amazon US from Amazon UK, etc., and Amazon in general from Shopify, Wal-Mart, eBay, etc.). Although you can be selling the same products in different markets, it is imperative that you determine which of those channels is generating the highest return on the investment of your time.

To make meaningful comparisons, you will need to keep tabs on sales and the cost of goods sold, fees, and any other channel-specific charges. This may assist you in determining where to expand and where it is possible that the effort will not be worthwhile. The worst approach to look at this is to combine everything into one big pile because doing so won’t tell you anything more than your overall results and may even hide the fact that one channel is disproportionately subsidizing other channels or even covering up losses!

When you are getting ready to sell your business, you should think about keeping track of your operating expenses (items you NEED to run the business) in a distinct category from your overhead expenses, which are valid business deductions but are not required to run the firm. When you sell your company, the company’s worth is determined by the Seller’s Discretionary Earnings (SDE), which are the profits of the company plus any money spent on the company that was not required to create the outcomes that were obtained.

If you let us know in advance that you are thinking about selling your business, we can divide these two categories of expenditures directly into your chart of accounts. This will enable you to monitor the sum of your SDE over a year, which will serve as the foundation for determining the worth of your company. Even though this can be done after the fact, having it already separated saves you time and provides a month-by-month snapshot of how much your company could sell for if you choose to put it up for sale.

How to Keep the Books for Your Online Store If You Sell on Amazon

Try Amazon bookkeeping and accounting in two ways:

  • The business owner can handle the accounting themselves.
  • The business owner can engage a professional to conduct the accounting.

Let’s talk about the second choice first because it’s the simpler one (and often cheaper, but more on that in a minute).

When you hire a professional bookkeeper, all the pressure and tension you have been carrying is lifted off your shoulders. You won’t have to worry about it being done, done on schedule, or done right. We will take care of all of those things for you. In addition, outsourcing this duty enables you to focus on other parts of your business, such as product development and marketing, which are likely to provide you with higher satisfaction.

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