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Accounting for Amazon Sellers: The Basic Things You Need to Know

Ready to get your finances organized for your e-commerce business? Check out our detailed and concise guide to Amazon accounting and bookkeeping in 2022.

Accounting for Amazon Sellers: The Basic Things You Need to Know
Julia Grant

April 7, 2022

Nobody likes to talk about taxes - but they are an essential element of every business. Here we’ve compiled the basics that you need to know about accounting as an Amazon seller. Let’s jump in!

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A Detailed Guide to Amazon Accounting For FBA Sellers

Selling on Amazon has become incredibly popular, with third-party sellers now making up about half of all sellers on the platform. This kind of business model is easy to start without much thought about taxes. When everything is done online and starts out so small, it’s easy to forget about the logistics.

An Amazon business can grow incredibly fast, however, and that means that you need to be proactive in your approach to these matters. Accurate bookkeeping and accounting are essential to protect your business from legal harm and keep your business moving forward in the right direction.

Why Choose Cloud Accounting?

Most online businesses take advantage of the growing cloud accounting industry to simplify their accounting processes. If you’re new to the accounting world, this may be a confusing phrase. Cloud accounting is simply accounting that takes place on “the cloud” (the internet).

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Popular software that is available in this industry includes Quickbooks, Xero, MYOB, and Zoho Books. You’ll save yourself many headaches by starting off with a cloud accounting service, rather than trying to do everything manually. This ensures that you can keep up with your books from anywhere, at any time - and gives you access to comprehensive financial reporting that may not be available so easily when doing things traditionally. 

Why Does Bookkeeping Matter

Bookkeeping and accounting are incredibly important for anyone operating in the business world, including those operating in the e-commerce space. Your Amazon business is no different! Proper accounting helps you mindfully grow your business in peace. You cannot do this if you are routinely unaware of your financial standing.

So why can’t you just worry about finances around tax season, and skate by using Amazon’s reporting from your Amazon seller central account and your High School level Excel skills? 

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This approach may work if you’re dealing with $100 in revenue every month - that’s easy to track. But hopefully, your aspirations for your Amazon business are much larger. Because of this, you need a few key securities that only proper bookkeeping can give you. 

Amazon Accounting Affects Your Day To Day Operations

Finances are not exclusively important to tax season. We all understand this personally - imagine if you only evaluate your financial situation once a year when sending in your income tax. This would be a disaster! You would have no idea what budget to set for you or your family, and likely overspend in a disastrous manner.

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The same goes for your business. Accurate, professionally handled, and routine bookkeeping services help to keep you on track in the day-to-day of your business operations. Being acutely aware of your gross profit, net profit, operating expenses, changes to your sales pattern, and cost of goods all help you to properly set your budget for inventory management, marketing campaigns, third-party services, and even your own salary. 

You need to be on top of your financial situation as a business. If you are not, you will quickly find yourself in trouble. Amazon seller bookkeeping and accounting affect your bottom line every month - not just in April.

Professional Accounting Keeps You Safe From Error

Many Amazon sellers will try to solve this problem by setting up their own systems and taking care of the accounting work in-house. This is a disaster waiting to happen. There is a reason why professional accounting services hire CPAs who have been trained and educated specifically in this field. Accounting is hard work. It requires a proper understanding of the systems that streamline financial reporting, mathematical skills, and an understanding of the various codes that affect both businesses and individuals.

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Unless you happen to have studied accounting at an undergrad or postgrad level, you are not cut out for this job. You may be able to DIY it in your early days - but as you grow in your sales and profits, you don’t want to leave things to chance. 

Amazon accounting and bookkeeping is not the job for you or your assistant unless one of you has been professionally trained accordingly. It will cost more to backtrack and get everything corrected after it has been done incorrectly than to just start off right from the get-go.

What Does An Amazon CPA Do?

This is where an Amazon CPA comes in. Now, to be fair, this is kind of a made-up term. A CPA is a Certified Public Accountant - someone who has met state licensing requirements and has earned this title through educational training, work experience and passing the CPA Exam. 

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When working with an accounting firm, you want to make sure they have CPAs on the team. You do not want to work with just an accountant - not all of them have this certification. 

CPAs typically specialize in one of the following areas:

  • Auditing and review
  • Tax preparation and consulting
  • Consulting services
  • Financial planning
  • Litigation consulting

They can work in:

  • Public accounting
  • Government
  • Non-profit
  • Education
  • Business 

An Amazon CPA is simply a CPA who has decided to specialize in providing tax services for Amazon sellers. They have familiarized themselves with the unique financial needs of an Amazon seller, and are best able to assist you in getting the maximum returns on your taxes and the maximum benefits from bookkeeping as a whole.

Some Terms To Consider

The average American isn’t particularly savvy when it comes to financial lingo. Let’s go through some key terminology to consider when dealing with your Amazon bookkeeping.

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  • Cloud Accounting: Cloud-based accounting software allows individuals and businesses to perform their bookkeeping online. 
  • Accounts Payable: The money you owe your suppliers, merchants, contractors, etc.
  • Accounts Receivable: This is your income. This can come from sales, affiliate payments, and more.
  • Profit and Loss (P&L) Statement: Also called an Income Statement, the P&L showcases all revenue and expenses in the specified time frame. 
  • Balance Sheet: A balance sheet showcases all assets and liabilities (debts).
  • Accrual Accounting: Accrual accounting records all transactions, both income, and outcome when they occur. 
  • Cash-based Accounting: Cash-basis accounting records transactions when the money enters or leaves your account.
  • Cash Flow Forecast: Cash flow forecasting takes available bookkeeping data and uses it to create best, moderate, and worst-case scenarios for your financial future. These help you to make informed business decisions in the future.

It’s critical to understand these terms as an Amazon business owner, even if you’re not performing the nitty-gritty tasks of your bookkeeping. 

Your P&L Statement and Cash Flow Forecast are essential to helping you operate your business smoothly and make the right financial decisions for your business as you move forward, including inventory planning, salary, and marketing initiatives. 

Accounting Tips & Tricks

There is an endless amount of education and training that goes into professional accounting work. Many CPAs are actually committed to continual education in the same way that teachers are, so to list all the necessary information here that you would need to do these tasks yourself is a fruitless task. 

Your best bet is to find a CPA who has experience specifically working with Amazon sellers, and allow them to handle your bookkeeping for you. If you are looking for someone to help manage your bookkeeping in a clear and organized fashion, maintain sales tax compliance and more our team of accountants at EcomHub can help you do just that. 

That being said, here are a few tips to get you started.

  1. Choose a Cloud Accounting Software

To get started, choose one of the cloud-based accounting software mentioned above. Popular cloud-based software includes Quickbooks, Xero, MYOB, Zoho, and more. This network is constantly growing. Quickbooks and Xero may be the most commonly used, and therefore the easiest to synchronize with other systems you have in place. 

  1. Record Everything

Small business owners should be tracking all receipts and keeping a detailed log of them. If you don’t already, ensure that you have a separate business account, an account to set aside funds for taxes, and a credit card specifically for your business. The organization is key to healthy bookkeeping and accounting.

  1. Use Accrual Based Accounting

Since Amazon businesses typically involve large, upfront expenses (buying inventory and paying for warehouse fees) followed by more even-keeled income (sales), accrual-based accounting can help to keep the numbers clear and spaced out rather than show an uneven distribution of income and outcome.

  1. Review Your Finances Monthly

No matter how you choose to perform your Amazon accounting and bookkeeping, you should be reviewing your financial documents every month to help keep your business growing properly. Don’t wait until tax season, keep a regular pulse on your business health and financial dealings. 

Conclusion

Bookkeeping and accounting are essential to your health as an Amazon business owner. This simple yet detailed guide should help you to get started - but be sure to get in touch with an experienced Amazon CPA who can guide you through your finances in an educated and organized fashion. Your financial health is the backbone of the health of your business as a whole!

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Accounting for Amazon Sellers: The Basic Things You Need to Know

Julia Grant

Julia Grant is a copywriter specializing in e-commerce and small business, helping businesses expand their reach with copy that clearly communicates their message and converts. She is a certified translator and interpreter and prides herself on providing culturally relevant content in both English and Spanish.

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