A Detailed Guide to Amazon Accounting for FBA Sellers

Want to make sure that you’re making the most of your FBA store finances? Here is our Amazon Accounting guide.

With the number of online businesses selling on Amazon growing exponentially year over year, competition is fierce. You need any edge to be able to stand out and claim your share of the pie.

Having proper accounting and bookkeeping systems and processes in place can give you confidence in your numbers and help you make more strategic business decisions. When you know your numbers, this allows you to see what’s working, capitalize on any early trends, and drive business growth.

In this post, we’re sharing a detailed guide to Amazon accounting for ecommerce sellers. 

What is Amazon accounting?

Amazon accounting refers to the variety of accurate accounting, bookkeeping and compliance-related financial tasks crucial for online retailers selling on Amazon, including: 

• Reconciling Amazon settlements with bank deposits. Amazon sellers receive settlement reports that detail their sales and fees. However, these reports can sometimes have discrepancies with a seller’s internal records. Reconciling these discrepancies is crucial to ensure accurate financial reporting and avoid tax issues.
  
• Profitability analysis by product and category. Amazon sellers need to understand the true profitability of each product and category they sell. This involves tracking not just revenue but also fulfillment costs, advertising expenses, and other product-specific costs. By analyzing profitability by product and category, sellers can identify high-performing and low-performing items, optimize pricing strategies, and make informed decisions about their product mix.

At the bare minimum, accurate tracking of transaction volumes (including Cost of Goods Sold (COGS) is essential for tax purposes as is effective inventory tracking.

In addition, there are two main types of accounting methods. 

• Cash-based method – records all transactions as the money enters or leaves your bank account.
• Accrual methods – records transactions when they occur. As you process a higher volume of transactions, most online businesses switch this method. 

Why is Amazon accounting and bookkeeping important for FBA businesses?

Accounting and bookkeeping tasks are the foundation of a solid Amazon business. This ensures that you know your numbers and can keep track of cash inflows and outflows properly.

Without a solid foundation in place, you are making your business journey much harder than it needs to be. It is like trying to beat an escape room game with a blindfold on. You might get lucky and get out quickly. Or, you might be crashing into a lot of walls.

When you run into problems, this can range from cash flow shortages, late payments to suppliers, or payroll problems.

Myth 1: You only have to worry about bookkeeping at tax time.  

One of the biggest misconceptions about accounting is that you can put it off until a few weeks before the tax deadline. You can think about it once, and then be done until the next year.

The reality is you are setting yourself up for all kinds of financial reporting, compliance issues, and cash flow problems with this laissez faire approach. 

In addition to doing your taxes, you need to have accurate bookkeeping records. 

Timely, accurate, detailed accounting provides you business intelligence to arm you in making the most informed business decisions around sales, customer acquisition, inventory management and operating expenses such as owner pay.

Myth 2: If you DIY your bookkeeping with Amazon’s default reports and an Excel spreadsheet, you’ll save money. 

Another problem that we see Amazon sellers run into is they hire a tax accountant, but then try to save time by DIY’ing their bookkeeping or having their VA do it.

Unless you were an accountant or bookkeeper before you started your FBA business, you probably don’t want to spend time on bookkeeping each month. Plus, this is time you could be spending growing your business instead of buried in Excel spreadsheets. 

Getting your VA to do it alongside any general, administrative work you assign to them isn’t much better. Unless you have defined bookkeeping systems and processes and an in-house controller managing the VA, the chances of your books being a mess are high. Then, either you have to fix them or you have to pay extra money to your accountant to clean up your VA’s work at tax time. 

What are the top benefits for Amazon FBA Sellers? 

Bookkeeping has many advantages beyond just keeping your books in order. 

Know your business’s finances 

When you have a financial system and processes in place, you can make more informed, data-driven decisions about the trajectory of your business.  You’ll be able to spot growth opportunities faster as well as get ahead of potential problems before they snowball.  

You will also have the business intelligence to review what products are selling profitably, which benefit from paid acquisition, and clearly know how much money is on hand to pay yourself at the end of each month.

Pro Tip: One of the most common issues we hear is that your Amazon 1099 K form isn’t matching what its in Xero or QuickBooks, here’s how to fix. 

Build a more profitable business 

Here at Bean Ninjas, we’re big fans of the Profit First Framework. 

The traditional way that many founders think about profit is: sales – expenses = profit. So, profit is just what is leftover at the end of the month, quarter or year. If you follow the trajectory of most businesses, there is rarely much profit left.

The Profit First Framework flips this formula around: 

Sales – Profit = Expenses

It is a subtle shift, but forces business owners to prioritize running a profitable business. 

Create cash flow forecasts

Another benefit of establishing a regular bookkeeping cadence is that it allows you to do regular cash flow forecasting. You can create best, moderate, and worst-case scenarios which can help you decide how much to invest in Amazon PPC ads, how much inventory to buy, when to hire, etc. 

In particular, two tools that are critical for FBA sellers looking to scale their brand are inventory planning and cash flow forecasting. They go hand in hand, since you can’t successfully grow without stock. 

These tools help provide you the insight and confidence around what’s available to be spent and when. 

It’s the difference of driving your car looking out the rear-view mirror rather than at the road straight ahead of you through your windshield. 

A major challenge for most early-stage FBA operators to understand is profit is not cash – commitments on payments against PO terms, repayment schedules on credit cards or other debts often become a challenge to simply remember when looking at your bank balance and deciding on major spend decisions. 

Pro Tip: Want to create your own cash flow forecast and get more confident in your numbers? Download our free cash flow template.

Avoid scary letters and fines from the tax office 

There are two certainties in life: death and taxes. While you can’t escape either, you can at least map out a plan and put aside money for taxes.

Pro Tip: If you adopt the Profit First Framework, you’ll put aside money for taxes in addition to profit and operating expenses twice a month. 

This ensures your bookkeeping is up-to-date and you have money sitting in a bank account ready to pay your taxes on time. Instead of frantically trying to play catch-up on your bookkeeping before the looming tax deadline or not having enough money set aside to pay the bill.  

How to do accounting for an Amazon FBA business

Accounting and bookkeeping works best if you have defined systems and processes. There are three steps to getting all squared away: 

1. Choose a cloud accounting software
2. Build your Amazon accounting tech stack 
3. Create your financial reporting systems and processes 

Luckily, there are tons of tools available to make this easier. 

Choosing a cloud accounting software

Many Amazon sellers use cloud-based software to handle these needs effectively. Some of the most popular cloud-based accounting software options are Quickbooks and Xero. 

This allows you to have your data accessible from anywhere. It is also faster, more accurate, and more reliable than Google Sheets or Excel spreadsheets. You can also connect either QuickBooks or Xero directly to your Amazon Seller Central Account as well as a host of other software you might be using in our business. 

Here are some initial questions to ask when you are evaluating various accessible accounting software choices.

• Is it easy to use?
• Does it automatically sync with my business bank account, credit cards, any sales or financial software that we’re already using?
• Is it fully secure and encrypted?
• Do they have fast, friendly, and helpful customer support in case I have any questions or issues?
• Do they integrate with all of the other sales channels you sell on (like Shopify, Etsy and Walmart) as well as the software you use to run your business? For instance, here are some of the top Xero integrations.

Pro Tip: Want to learn how to use Xero effectively for your Amazon FBA business with our free Xero toolkit. This includes our step-by-step checklist for setting up and keeping your Xero account in order

Building your accounting tech stack

The Amazon ecosystem is growing bigger every day. One of the biggest advantages of using cloud accounting software, such as Xero, is that you can integrate your key business software and bank accounts with it.

In our experience working with dozens of eCommerce customers, including many Amazon sellers, here are the apps we most recommend.

• HubDoc – Receipt management on autopilot (Bonus: it is free if you use Xero.)
• Zamp – Helps you collect and maintain sales tax compliance
• A2X – automates and posts your Amazon and Shopify (if you sell through multiple channels) directly into Xero

Pro Tip: One of the biggest benefits to using A2X is that it eliminates the lengthy process of going through your Amazon settlement reports every two weeks.

Creating your financial reporting systems

Many Amazon sellers rely on bank balance accounting. They check their account daily or a few times a week. If the account is growing, they carry on as normal.

However, this can be an unnecessarily stressful way to run a business. As your business scales, your expenses scale too. If you are only paying attention to your bank balance, it is easy to run into business performance challenges, cash flow management issues, inventory shortages, and rack up a ton of debt.The better approach is to set up and then do regular reviews of these three financial statements on a monthly basis at the minimum.

1. Profit and Loss Statement (P&L)

Your P&L is a report that allows you to quickly see all of your revenue and expenses in a given time period. 

The two biggest advantages of this report are: 

• Helps you spot trends 
• Keep a close eye on expenses 

For example, if you notice a big surge in new sales in the month of July, you’ll want to lean in and figure out what caused that. 

• Did you spend more money on Amazon PPC Ads? 
• Try a new Amazon SEO strategy?
• Get publicly from a big name influencer? 
• Something else?

If you can figure out what caused the spike in sales, you can then double down on what’s working. Plus, you may also want to invest in more inventory. 

The reverse is also true. If you notice sales are down month over month unexpectedly. You might want to keep a closer eye on expenses. Perhaps, get rid of a piece of software or two you aren’t using? 

2. Balance Sheet 

If you ever need a bird’s eye view into your business, your balance sheet is a great starting point. It allows you to take stock of all of your assets (what you own) and liabilities (what you owe).

In addition, we recommend reconciling your accounts monthly and calling these balance sheet reviews. 

3. Cash Flow Forecast

A cash flow forecast is a tool you can use to better plan for the future. 

Unlike your P&L and balance sheet, it is a more hands-on report where you can model best-case, moderate, and worst-case scenarios.

We recommend that most businesses create cash flow forecasts at least once a quarter. You may want to do this more often if your business is prone to volatility or you are in uncertain times – like a global recession and pandemic. 

To complete a cash flow forecast, you’ll need the following: 

• Your beginning cash flow balance (for that time period)
• Cash inflows – all the revenue coming into the business 
• Cash outflows – all of the cash leaving the business (i.e. expenses) 

Pro Tip: Want to learn how to create your own cash flow forecasts? Check out our detailed cash flow forecasting guide. 

We recommend that most businesses create cash flow forecasts at least once a quarter. Here's how you can do it. Share on X

What are some general Amazon accounting best practices? 

We’ve helped a lot of Amazon businesses over the years. In this section, we’re sharing a handful of best practices. 

Make sure your chart of accounts is up to date

Your chart of accounts is basically an index of all the categories you are going to use to organize your transactions. 

A clean chart of accounts allows for greater efficiency in your reconciliation and categorization efforts, as well as supports enhanced financial reporting capabilities that can be used for budgeting, forecasting, and identifying areas for improvement.

We recommend customizing your charts of accounts during the initial setup and onboarding. Then, maintaining it is fairly simple. It is just about categorizing all of your transactions on a regular basis – say weekly or monthly. This way, you have defined categories that show where you are spending your money.

Pro Tip: If you use Xero, you can set up automated rules that automatically categorize many of these transactions for you. For example, if you use A2X, it would automatically categorize it as software.

Commit to either cash or accrual accounting 

Cash vs. accrual accounting – which is better for your Amazon business? The answer is it depends.

The primary difference between cash-based and accrual-based accounting is timing. 

Many businesses start off using cash-based accounting and switch to accrual accounting as they get larger. Accrual accounting tends to work better for FBA businesses, who are fast-growing, tend to have big sales spikes throughout the year (instead of consistent demand/sales each month) and inventory fluctuations. However, we recommend speaking with your Amazon accountant to decide which method of accounting is right for your business.

Reconcile your bank statements

You can run a reconciliation report to see if there are any inconsistencies between bank and credit card statements and what is showing up in Xero. This is especially important at tax time to ensure you are reporting the right financial numbers.

Cloud accounting software, like Xero, is great at automatically syncing all of your bank transactions to your feed. However, occasionally one of your bank feeds might have an outage or some transactions go unaccounted for.

This is why bank reconciliation is so important.

This is especially important at tax time to ensure you are reporting the right financial numbers. Another benefit is protecting your business from fraud. For example, if your VA has access to your bank accounts, running a reconciliation report on a regular basis ensures they aren’t stealing from the company.

Categorize inventory properly 

How much inventory should you order?

When should you order more inventory?

Should you discount any excess inventory or let it sit in the warehouse?

How do you account for shrinkage (i.e. damaged, lost, or stolen inventory that can’t be sold)? 

These are all challenges that Amazon sellers face. 

When you set up inventory accounting properly and keep an up-to-date balance sheet, you can make decisions based on the data instead of going off intuition. You will also have the data available to back up requests to suppliers for preferential pricing or terms on future purchases.

The other benefit is that if you ever need to take out any loans or short-term financing to buy more inventory or meet any purchase orders, it becomes easier to get what you need if you were already in the habit of keeping detailed books. 

Stay compliant at tax time 

Every eCommerce entrepreneur has their own risk tolerance. However, when it comes to taxes, it is generally better to be safe than sorry.

For example, if your business is based in the U.S, the IRS can make you pay fines and even garnish your wages, take control of your personal assets, and throw you in jail for major offenses.One of the biggest headaches for Amazon businesses that also sell in other sales channels like Shopify and don’t roll under the Marketplace Facilitator Law is navigating sales tax. Figuring out where you have “nexus,” and how much sales tax you need to collect can be a daunting process. You don’t want to do this manually. That’s why apps like Zamp or sales tax advisors like TaxValet can be game-changers, especially as your Amazon business grows past $1 Million in annual revenue.

Create additional revenue streams 

The biggest risk of running an FBA business is that you are solely reliant on a single sales channel.

If Amazon goes away tomorrow (unlikely, but you never know), your account gets suspended or banned, or Amazon deprioritized your shipments (which happened to many sellers at the start of the pandemic), you are out of luck. 

Even if it is only 5% of your total sales, having a Shopify store and/or selling on additional channels diversifies your revenue streams.

The biggest risk of running an FBA business is that you are solely reliant on a single sales channel. Share on X

When to hire an Amazon CPA 

While every business is different, most Amazon businesses tend to hire in this order.

They start out doing everything themselves (maybe, they take a financial literacy course, or two?), then they hire their Amazon CPA and/or a bookkeeper and finally additional professionals like a Virtual CFO or an in-house controller.

Unless you have an extremely tight budget or extensive financial experience, accounting and bookkeeping is usually one of the first things entrepreneurs outsource or delegate. This makes sense. As the owner, you are pulled in many directions from sales and marketing to sourcing new products, supply-chain management, customer service, and accounting and bookkeeping.

If you are spending a bunch of time on bookkeeping, tax planning, categorizing your chart of accounts, and filing your taxes, it is time you are not spending growing your business.

In fact, holding on too tightly to accounting and bookkeeping if you don’t have a financial background can actually create more issues than outsourcing it early on.

This way they can help not only file your taxes, but also set up the necessary goals, objectives, systems, and provide proactive insights to key tax-savings strategies.

Once you have a tax accountant in place, you’ll want to bring on a bookkeeper. (Or, if you can afford it, it can be helpful to hire both at the same time). Then, your bookkeeper can go in, follow the processes you and your accountant establish, and up to your financials each week.

This is especially true once you have any employees. There are tons of nuances around payroll taxes, and it is one of the few things – along with student loans – that can be discharged even if you file bankruptcy.

Should you hire in-house or delegate to a third-party ecommerce specialist accounting firm like Bean Ninjas?

The main advantage of hiring a full-time accountant in-house is that they are paying them to work directly for your online business. As an employee, they’ll get to know the ins and outs of your business and can help you make strategic financial decisions and not just daily operations and daily accounting processes, including bookkeeping, invoicing, and payroll.

The disadvantages are it typically costs more, longer onboarding ramp-up, and management time. Depending on the experience level you need, the scope of work, and where you hire, you can expect to pay between $10 – $40 per hour for a bookkeeper. This doesn’t account for all of the additional expenses incurred with full-time employees, like payroll taxes, paid sick leave, benefits, etc.

Pro Tip: Pay close attention to traditional accountants billing for bookkeeping services on an hourly basis. You want someone who will be timely and efficient in your processing, not someone incentivized to take more time than necessary to deliver you timely, accurate reports.

If you can’t afford a full-time, in-house accountant or simply don’t want to deal with the management time, using a turnkey, specialist ecommerce accountant or accounting firm like Bean Ninjas can be a great alternative. When you outsource, it is a monthly expense (instead of fixed overhead) and you get the benefit of working with a company that has dialed-in processes and expertise in the cloud accounting software you use.

For example, in addition to having years of experience working with Amazon and eCommerce entrepreneurs, dialed-in bookkeeping processes, and exceptional client support, we also know the ins and outs of both QuickBooks and Xero as well as relationships with people at both platforms. This is something you’d be hard-pressed to find if you hire an in-house bookkeeper in your city. 

With a unique perspective gained from working with hundreds of eCommerce brands, they unlock valuable benchmarking insights. This allows you to see how your brand stacks up against the competition in terms of spending and performance, helping you identify opportunities for improvement.

How to vet accounting and bookkeeping hires 

Whether you choose the in-house or third-party route, you might still have some doubts on how to hire and find the right person or third-party service. 

The two things that can help you find the best fit: 

• Be forthcoming about your business
• Ask lots of questions 

The advice you receive from your accountant and bookkeeper will only be as good as the information you share with them about your business, growth objectives, and challenges. For example, if you only give them basic information, they are going to provide you with more general advice and best practices. 

The other aspect is asking lots of questions to learn more about them, how they work, and what processes they follow. The last part is key since both accounting and bookkeeping are process-oriented. 

Pro Tip: A giant red flag is any accountant or bookkeeper who openly admits that they work on the fly and/or hates checklists. This might work well if you are looking for a creative director. However, this is a recipe for a mess at tax time. 

So, what questions should you ask? We compiled a handful. 

• What kind of experience do they have? 
• Are they registered and qualified? 
• Do they have experience with the cloud accounting software you already use? 
• Do they have ample experience working with Amazon businesses? 
• What’s their current bookkeeping processes? 
• Does their communication style match yours? 
• What’s the average delivery and response times? 
• How are they protecting their clients? 

Pro Tip: Want more interviewing tips? Check out our detailed guide to hiring bookkeepers.

Amazon Accounting key takeaways

Amazon accounting can be a complex task, especially for sellers who are just starting out. However, by establishing a solid foundation of systems and processes early on, managing your finances on the platform can become much easier and more efficient.

• Using cloud accounting software
• Building your accounting tech stack
• Optimizing your chart of accounts and keeping up-to-date
• Creating and monitoring your financial reports each month
• Building your financial team

Amazon Accounting Frequently Asked Questions 

How do I handle sales tax as an Amazon FBA seller?
Navigating sales tax collection and remittance on Amazon can be complex due to varying state and international regulations. Fortunately, Amazon’s Marketplace Facilitator automatically collects and remits sales tax in many regions. However, it’s essential for sellers to stay informed about their tax obligations in regions not covered by this service and consider consulting with a tax professional to ensure all liabilities are accurately addressed.

What are the key financial metrics I should track as an Amazon FBA seller?
To gauge the financial health of your Amazon FBA business, focus on tracking metrics such as gross profit, net profit, operating expenses, and the Cost of Goods Sold (COGS). Regular monitoring of these metrics will provide insights into profitability, cost efficiency, and areas needing attention, helping you make informed decisions to optimize your business operations.

How do I account for Amazon fees as an FBA seller?
Amazon fees can significantly impact your bottom line, so it’s crucial to accurately account for all charges including FBA fees, referral fees, and monthly storage fees. Properly categorizing these fees in your accounting software will help you maintain clear financial records and understand the true cost of sales, aiding in more precise profit calculations.

What’s the best way to manage inventory for accounting purposes as an Amazon FBA seller?
Effective inventory management is essential for accurate financial reporting. Implement a consistent method, like average cost, to evaluate inventory costs and adjustments. Regularly assess your inventory for any loss or obsolescence and make necessary adjustments in your accounting records to reflect the true value of your inventory on hand.

How do I differentiate between personal and business expenses as an Amazon FBA seller?
Clear separation of personal and business expenses is vital for accurate bookkeeping and tax reporting. Use a dedicated business bank account and credit card for all business transactions to simplify tracking and reporting. Regularly reviewing your expenses can also help ensure that only legitimate business expenses are recorded, thereby avoiding potential issues during tax audits.

How often should I do accounting tasks as an Amazon FBA seller?
Keeping your accounting records up-to-date is crucial for managing a successful Amazon FBA business. Regular tasks like reconciling bank statements and updating financial records should be done monthly. This consistency helps in maintaining accurate financial data, aiding in better strategic planning and readiness for annual tax filing.

What are the best accounting software or tools for Amazon FBA sellers?
Choosing the right accounting software that integrates well with Amazon’s systems is crucial. Look for tools that can automate data entry, handle inventory management, and support multi-channel operations if you sell on platforms besides Amazon. Popular choices among Amazon sellers include QuickBooks Online and Xero, both of which offer robust features and integrations specifically designed to streamline e-commerce accounting.

When should I hire an Amazon CPA?
Considering a CPA (Certified Public Accountant) is advisable when your Amazon FBA business starts to experience significant growth, complexity in financial transactions increases, or when tax compliance becomes too cumbersome to handle on your own. Hiring a CPA is also beneficial if you’re planning to expand internationally, need assistance with financial forecasting, or require expert advice on tax deductions and liabilities. CPAs can provide valuable guidance on strategic financial planning and help ensure that you are maximizing your profits while staying compliant with tax laws. Typically, if you find yourself spending too much time on accounting rather than focusing on growing your business, it might be time to bring a CPA on board.

How do I hire and vet an Amazon CPA?
Hiring the right CPA for your Amazon FBA business involves several steps to ensure they are well-suited to meet your specific needs. Start by seeking recommendations from other Amazon sellers or professional networks. It’s important to verify the CPA’s credentials, including certification and licensing, to confirm their qualification. Ask about their experience with e-commerce businesses, specifically with Amazon FBA sellers, as this niche requires familiarity with Amazon’s fee structures, inventory management, and specific tax issues. During the vetting process, inquire about their approach to financial management and their experience with tax planning and compliance. It’s also beneficial to discuss their availability and communication style to ensure they align with your expectations and business requirements. Finally, consider their fee structure to ensure it fits within your budget while accommodating the level of service you require.

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