Amazon Accounting

Accounting Methods. For ecommerce and Amazon businesses, using the Modified Cash or Modified Accrual Accounting method is best for your books. This method gives you the benefits of accrual accounting where it matters—matching revenue and cost of goods sold expenses in the period where the sale occurs. And it comes without all the headaches and extra expense of accruing operating expenses such as your insurance or payroll. Of course, we can do that if it’s necessary for your business, but most Amazon businesses don’t require that until they get to be very large.

Tracking COGS. Keeping up with Cost of Goods Sold (COGS) is one of the most important parts of Amazon accounting and often one of the biggest expenses in an ecommerce business. By including your product cost and any other expenses it took to send your product to Amazon, you’ll get the most accurate cost of your products. This will make working on your profit a lot easier and you’ll be able to tell which products may not be worth the expense.

Sales Channels. Breaking out expenses and income by sales channel is the best way to keep your books and your data organized so your decision points are clear. In the same way that tracking COGS will let you know which products make you the most money, keeping your channel transactions separated will let you know which channels are worth your while.

Operating Expenses. Another good practice is ensuring your Chart of Accounts gives you the right level of information.  You want to enough aggregation to see the big trends and yet enough detail to know where to focus your attention.  Financial reports should tell a story and with the right level of detail you can quickly understand how Operating Expenses are trending and take action if they are getting out of hand.

International Sales. International sales can come with different ramifications than sells in the U.S. There may be fees, currency exchange rates, and other extra hoops to jump through. Of course, you’ll also want to keep income and costs from international sales channels separate from their respective U.S. channels.

Sales Tax.  While Amazon is collecting and remitting sales tax on your behalf, you have to consider sales tax if you decide to sell on other platforms such as Shopify.  When you sell on other platforms, keeping up with your bookkeeping will help you account for all your separate sales tax collections, understand where you have Nexus and register and remit accordingly.

Understand the Importance of Inventory. We know that inventory is your lifeline, but it’s also your cash flow nightmare. To fully understand your profitability, you must manage your inventory and account for it with as much precision as possible. Even though you may just be starting out, you can’t afford to take your eye off the inventory ball.

Perfect Your Chart of Accounts. Your chart of accounts should give you the proper level of detail for each of your settlements, and an Amazon accountant can ensure that is happening. Our clients have thousands of orders a month that they monitor in Seller Central. We import that information into your accounting system in a summary entry based on your settlement payouts. We use a software system called A2X to integrate with your QuickBooks or Xero account to ensure that we capture the correct detail in the month it occurred. This helps keep books clean, allowing you to have a better understanding of what is going on in your Amazon business.

Navigate Reports with Ease. In addition, our Amazon bookkeepers are comfortable navigating the reports needed from Amazon Seller Central and will help you understand them. You will need to give them access to the settlement and payout reports and the inventory reports. If you sell in multiple countries, your bookkeeper will also need access to those accounts. You may also use Amazon Pay. If so, your Amazon bookkeeper should know how to get the data out of those reports.

It can be overwhelming and easy to miss steps as you set up all of these accounts. An Amazon accountant can help ensure the accounts are correct and can help you if something is not working correctly. Recently, one of our accountants found that a client had not set up their banking integration to Amazon Pay. As a result, $97,000 was being held at Amazon waiting to be disbursed. This is why having a knowledgeable accounting partner is so important for your business.

Make Sure Your Inventory is Accurate. There are many applications available in the ecommerce space that will track your inventory. Most of our clients use everything from excel spreadsheets, Inventory Lab, Restock Pro, Dear Inventory, Seller Legends, to much more expensive and customized solutions. An Amazon accountant will want access to these systems in order to pull the reports needed for properly syncing or “truing up” inventory between your physical counts on hand at Amazon, your other warehouse, items that are prepaid and in transit, and your financial records. You should be able to either share access to these systems to minimize your role in the process, or at a minimum, provide the reporting so your Amazon bookkeeper can pull the information and make the proper entries in your book.

Help You Grow Your Ecommerce Business. You need sound, accurate data to run your business, and at bookskeep, we take our knowledge gained from clients along with their inventory and cash flow challenges and we add our Profit First expertise to give you exactly that. In fact, our founder, Cyndi Thomason wrote the book on ecommerce profitability, Profit First for Ecommerce Sellers. We also help you understand this data so you can make the best decisions to ensure your business is profitable. Isn’t that the point, after all? Profitability must be examined at the big picture level by monitoring your gross margin for the business, but also at the product level. Which products are the most profitable? Which products are selling below our target margin and how can we improve them or change up our portfolio mix of products?

Ecommerce businesses are typically big advertisers. Are you spending a ton of money on advertising without seeing the results? Amazon Pay Per Click can eat up all your profits. Having an Amazon accountant help you monitor the return you are actually receiving on ad spend, based on sales increases instead of other marketing metrics will keep the proper focus on profitability, not just increased sales revenue.

The day you make a sale is the day you should start monitoring your numbers. While I understand this can be a big undertaking at the beginning of your business when your time and money are in short supply, I also know that you must keep score to know if you’re winning. If you’re spending money and it is generating no return, then you need to take a step back. If you want to get off on the right foot but “do it yourself” we have a 1-on-1 training program called SmartStart that can help! In this program, we will teach you how to do your books and how to review and understand your reports so you can understand your numbers. Once your business has grown and your sales generate enough profits, then it is time to have someone else perform the work for you, our SmartBooks program might be a better fit. With our SmartBooks program, you will have a dedicated Amazon bookkeeper handling your back-office accounting for you so you can focus on other aspects of the business.