Before we proceed, it’s important to acknowledge that the information provided here serves as general guidance and is not intended as specific accounting advice. We strongly recommend seeking the expertise of a certified public accountant (CPA) or tax attorney for personalized accounting recommendations and appropriate tax, accounting, and legal advice tailored to your individual circumstances.
Assuming you already possess a basic understanding of accounting principles, our goal is to help streamline and optimize your Amazon accounting processes. For newcomers to the world of business or accounting, we suggest starting with a crash course in accounting and reading relevant books to gain a foundational understanding. To truly excel, consider enrolling in accounting classes or seeking guidance from experienced professionals who can provide practical insights and expertise.
While we cannot offer tailored accounting advice, we can provide some general tips to enhance your Amazon accounting practices. Begin by separating your business and personal finances to simplify record-keeping and ensure accurate financial reporting. Implement a reliable system to track your Amazon sales, fees, and expenses, either through accounting software or specialized tools designed for Amazon sellers. Familiarize yourself with sales tax obligations and consult with professionals to ensure compliance. Maintain well-organized records of all financial transactions, including receipts and invoices. Regularly reconcile your accounts to identify discrepancies and errors. Finally, consider working with a qualified CPA or tax attorney who specializes in e-commerce accounting or has experience with Amazon sellers to receive tailored advice and support.
Remember, accounting plays a crucial role in the success of your Amazon business. By implementing sound accounting practices and seeking professional guidance when necessary, you can enhance financial management, optimize tax strategies, and make informed decisions that contribute to the long-term growth and sustainability of your business.
Business Accounting Reports
In this section, we will explore the essential reports needed for bookkeeping and managerial purposes, specifically focusing on payment, inventory, and sales reports.
To assist you in generating these reports, we have provided a comprehensive document titled “Amazon Accounting Reports” which outlines the step-by-step process for each report. Please note that some reports may take up to an hour to generate, so if you don’t see the report immediately, kindly check again later.
These reports offer a summary or detailed breakdown of your sales, associated fees, and the payments received from Amazon.
The following reports are available:
- Statement View Report
- All Statements Report
- Date Range Reports
- Transaction View Report
When it comes to FBA inventory, Amazon provides more detailed data through their FBA reports than what your own accounting software might offer. It’s important to consider that the inventory data in your books may not accurately reflect inbound shipments, missing items, reserved or transferred inventory, and damaged goods.
While it can be challenging and unnecessary to constantly update this information in your accounting books, it is crucial to regularly access the inventory reports in Seller Central to stay informed about your inventory status. Although there are numerous reports available in the Inventory section, many of them provide only partial data for accounting purposes.
To effectively manage your inventory from an accounting perspective, we recommend using the “Inventory Health” report and the “Manage FBA Inventory” report. To access these reports, navigate to the Reports tab, select Fulfillment, and click on “Show More” under the Inventory section.
The Inventory Health report provides both a viewable and downloadable report of all your inventory, while the Manage FBA Inventory report is solely available for download and provides a comprehensive overview of your FBA inventory.
Many sellers with fewer than 50 SKUs find it convenient to use the Manage FBA Inventory screen within the Inventory tab instead of pulling the Manage FBA Inventory report.
By regularly reviewing these reports, you can maintain accurate inventory records and make informed decisions regarding your stock management. Remember, accurate and up-to-date accounting records are crucial for effective financial management and decision-making in your Amazon business.
In this section, we will delve into the different reports available for analyzing your sales performance.
These reports provide valuable insights and can be accessed by following a few simple steps.
To access your sales reports, navigate to the Reports tab and click on Business Reports. This will direct you to the Sales Dashboard, which displays today’s sales, along with comparisons to previous timeframes such as yesterday, the same day last week, and the same day last year, all broken down by hour.
From the Sales Dashboard, you can apply various filters to generate reports based on specific timeframes, product categories, and fulfillment methods. The default view presents the data graphically, allowing you to easily compare sales between different time periods and identify seasonal trends.
If you prefer a list view, you can select the Table View option in the top right corner of the Compare Sales section. Whether in graph or table view, you can download the displayed data as a CSV table by clicking on the Download button in the top right corner.
However, the Sales Dashboard is just the tip of the iceberg. The comprehensive range of business reports can be found below the dashboard link in the Business Reports section. All reports in this section can be viewed on screen and downloaded for further analysis.
Sales Report Filter
By Date: This report aggregates your SKU data on a daily, weekly, or monthly basis, depending on your view selection. It provides an overview of your account performance, including buy box percentage, average selling price, and average offer count, for a given period.
Within the By Date section, there are subsections for Sales and Traffic, Detail Page Sales and Traffic, and Seller Performance. These reports offer valuable insights into sessions (customer visits to Amazon.com pages) and page views, allowing you to understand customer engagement with your listings.
By ASIN: These reports provide analytical data such as sessions, page views, buy box percentage, units ordered, and ordered product sales for individual ASINs. The reports can be filtered and downloaded in CSV format, enabling you to assess SKU-level performance and make data-driven decisions.
Within the By ASIN section, there are subsections for Detail Page Sales and Traffic, Detail Page Sales and Traffic by Parent Item, and Detail Page Sales and Traffic by Child Item.
Brand Performance: This section provides performance data for each SKU, including customer reviews received, average customer review ratings, sales rank, buy box percentage, and missing image indicator. It is essential to monitor this report alongside your sales reports to gain a holistic understanding of your brand’s performance.
Listings With Missing Information: This report, found under the “Other” section, directs you to the Manage Inventory tool. It helps identify listings that are incomplete or contain incorrect information, allowing you to rectify any issues and optimize your product listings.
Inventory In Stock: This report takes you to the Amazon Selling Coach section, providing metrics to help you ensure you stay in stock for each ASIN. It offers valuable insights into inventory management and helps you maintain a healthy supply chain.
How to Track FBA Inventory In Your Books
Tracking FBA inventory within your accounting system can be challenging, especially if you have your own warehouse locations in addition to utilizing Amazon’s fulfillment by Amazon (FBA) service. In this section, we will explore popular methods that sellers employ to track and account for FBA inventory in their books.
One method involves creating a sales order to Amazon to deduct the FBA inventory from your available inventory quantities in your books. Purchase orders are then generated based on data extracted from your Amazon payment reports. Essentially, when a product is sold and you receive payment from Amazon, you use their payment statement to generate an invoice from your sales order. Subsequently, when funds are deposited into your bank account, you record payment against that invoice.
Advantages of this method include a closer alignment with reality, as the inventory on the sales order is in Amazon’s possession but has not yet been sold through the channel. This allows you to deduct the inventory shipped to Amazon from your available inventory quantities in your books without recording sales. Additionally, you can create invoices from the sales order using Amazon’s payment reports, updating sales figures in your books and automatically adjusting the inventory balance on the sales order to reflect the remaining inventory at Amazon that has not been sold.
However, there are some disadvantages to consider. You will need to update the sales order or create new ones for additional items sent to Amazon, which can be cumbersome. Creating purchase orders that align with items sold from multiple sales orders can also be challenging. It is important to note that while accounting software like QuickBooks supports the use of sales orders in this manner, not all accounting systems have this feature and may only offer sales receipts, which differ significantly from sales orders.
This process may confuse inexperienced bookkeepers and can be time-consuming, particularly if you frequently send shipments to Amazon. It requires diligent tracking and coordination between your accounting system and Amazon’s FBA inventory management.
It is advisable to consult with an experienced bookkeeper or accounting professional who is familiar with your specific accounting software to ensure proper implementation of this inventory tracking method. They can provide guidance and support to streamline the process and minimize potential errors or difficulties associated with tracking FBA inventory in your books.
Additional Warehouse Inventory Accounting
When it comes to tracking FBA inventory in your books, another popular method is to allocate that inventory to an additional warehouse location, often referred to as FBA warehouse or warehouse #2.
The advantages of this method include the ability to deduct the FBA inventory from your available inventory quantities in your books without the need for sales orders. It is a quicker process compared to the sales order method.
However, there are some disadvantages to consider. Managing an additional inventory location within your accounting software becomes necessary. FBA inventory has various classifications such as fulfillable, unfulfillable, reserved, receiving, in-transit, and they are subject to constant changes. Matching these classifications in your accounting software may be challenging or time-consuming. Moreover, not all accounting software applications support multiple warehouse locations, including some popular web-based accounting software.
Non-inventory accounting is an alternative approach taken by many FBA sellers. Instead of entering detailed inventory information into their accounting programs, they rely on Amazon’s detailed records on inventory, which include daily and monthly inventory amounts. As we will explore in the next section, this approach involves not tracking individual inventory assets in your books.
It’s important to carefully consider the pros and cons of each method and choose the one that aligns best with your business needs and accounting capabilities. Depending on your accounting software and inventory management requirements, you may opt for the additional warehouse inventory method or explore non-inventory accounting options. Consulting with an experienced bookkeeper or accounting professional can help you make an informed decision and implement the chosen method effectively.
Cash Vs Accrual Based Accounting for Amazon Sellers
When it comes to choosing between cash-based and accrual-based accounting for your Amazon business, it’s important to consult with your CPA to make the appropriate decision. However, it’s worth noting that many experienced sellers opt for a blended approach that involves not continuously tracking inventory in their books.
Instead, these sellers perform reconciliations using Amazon FBA inventory reports and enter the inventory asset value at the end of specific periods, such as monthly, quarterly, or annually. This approach allows them to satisfy tax requirements without the need to record every transaction and inventory value from purchases in their books.
While some businesses prefer the traditional method of entering all transaction and inventory data into their books, others have found more efficient ways to manage their Amazon sales while meeting tax obligations. These sellers leverage external tools to monitor, analyze, and manage their inventory and unit sales, streamlining the process and reducing complexity.
To illustrate this, let’s consider an electronics seller who faced challenges when trying to input Amazon sales data into their accounting software. They would download bi-weekly Amazon settlement reports and manually extract the data to create a sales receipt in their accounting software. However, due to the various fees, refunds, reimbursements, and other factors, they sometimes doubted if they had accurately inputted all the information. Additionally, the seller’s settlement reports extending into the next fiscal year caused them to include sales from the following year on their taxes.
In response, the seller implemented a non-inventory item type in their accounting software, which means the items are not tracked as assets. Essentially, the items are expensed as soon as they are received. The seller now performs an annual inventory reconciliation to adjust the cost of goods sold and increase the inventory asset to match the in-stock inventory at the end of the year.
Popular Blended Methods
Here are some popular blended methods that sellers use to manage their accounting
- Record the purchase of inventory as an expense for a non-inventory item.
- Record the purchase of inventory as a cost of goods item tied to your Amazon sales income.
- Record one lump-sum payment from Amazon as Amazon sales income.
- Create a sales receipt for Amazon product sales, showing the total number of items sold without differentiating them.
- Create a bank account specifically for Amazon funds and transfer the amount paid by Amazon to your account with each settlement.
- Enter Amazon settlements as they occur, summarizing them by major account categories (e.g., principal, shipping, shipping tax, tax) using an Excel pivot table. Then use the “make deposits” function in your accounting software to enter the summarized data.
Entering Amazon Fees
- Record all Amazon fees as one expense.
- Summarize fees by major account categories, such as Amazon commission, shipping chargeback, refunds, FBA fees, shipping to FBA, etc.
- List all fees as an expense for Amazon fees, categorizing them under commissions.
- Use refunds to issue a refund, create a customer named “Amazon customer,” and record all Amazon sales under this customer.
- Alternatively, you can choose not to record any Amazon expenses and simply enter the net received payment as income from Amazon.
These blended methods offer flexibility in how you track and record your inventory, income, and expenses related to Amazon sales. The specific approach you choose will depend on your accounting software and personal preferences. It’s always recommended to consult with an accounting professional or CPA to ensure your chosen method aligns with tax regulations and suits the unique needs of your business.
Transaction Detail Methods
Here are some methods for managing transaction details and purchases in your accounting system:
Inputting Transaction Details
- Inputting by hand: Export the transaction detail report and manually enter individual orders and inventory into your spreadsheet or accounting software. Create expense items for different Amazon fees (FBA fees, return fees, shipping to Amazon, disposal fees, monthly service fee, inventory storage fee, etc.) and enter them as well.
- Exporting files: Convert exported files into a format that can be imported into your accounting software.
- Using software programs: Utilize a software program that automatically syncs your Amazon transactions with your books, streamlining the process and reducing manual data entry.
- Many sellers use non-inventory (non-asset) items when creating purchase orders and item receipts. They update the true inventory asset value annually for tax purposes.
- As a seller, you are responsible for collecting sales tax on orders for which you have a sales tax nexus or obligation. Here are some basic steps to consider:
- Obtaining a sales tax permit: During your business registration with the state, you should have the option to obtain a sales and use tax number. If you didn’t do this initially, visit your state government website to obtain a sales tax certificate and number.
- Paying sales tax: After obtaining a sales tax number, your state government will assign you a payment frequency (monthly, quarterly, or annually) based on the expected sales volume you provided during registration. The payment frequency may change depending on the amount of sales tax you collect.
It’s important to consult with a tax professional or CPA to ensure compliance with sales tax regulations and determine the specific requirements for your business based on your location and sales volume. They can guide you through the process of obtaining a sales tax permit, filing sales tax returns, and making timely payments.
Amazon’s Role in Sales Tax Collection: One common misconception is that sellers believe Amazon takes care of collecting and paying the sales tax if they have set up their sales tax information correctly with Seller Central. However, this is unquestionably incorrect. Amazon’s role is limited to collecting the sales tax payments on behalf of sellers for the tax jurisdictions where they have a nexus. The responsibility of tracking, reporting, and paying the sales taxes still lies with the sellers themselves. Amazon acts as a facilitator in passing the sales tax money through to the sellers, but it does not relieve sellers of their obligations or handle the actual payment of sales tax.
Collecting Sales Tax: Another misunderstanding revolves around the scope of sales tax collection. Some new sellers believe that they only need to collect state sales tax for shipments within the state where their business is located. However, this is not accurate. Sellers are required to collect and pay sales tax not only in the state where they are domiciled but also in states where they have a nexus. A nexus can be established through various factors such as having a physical office, employees, or inventory in a particular state, or meeting certain thresholds of sales or transactions. It’s important to note that nexus rules vary by state, and each state has its own criteria for determining nexus.
Nexus and Tax Liability: Nexus determines the extent of a seller’s tax liability in a specific jurisdiction. Many sellers may not be aware that they can have nexus in states where they don’t reside. For example, if a seller is based in California but has an office or inventory in New York, they may be subject to taxes for purchases made in both California and New York. Additionally, even if a seller only has inventory stored in another state, it can still be considered nexus, triggering sales tax obligations in that state. It’s crucial to understand that the concept of nexus extends beyond physical presence and can include economic factors as well.
Given the complexities and variations in sales tax laws across different states, it is highly recommended for sellers to consult with a knowledgeable tax professional or CPA who specializes in e-commerce taxation. They can provide personalized guidance based on the specific circumstances of the business and help ensure compliance with sales tax regulations. It’s essential to understand and fulfill your sales tax obligations to avoid potential penalties and legal issues related to non-compliance.
Tax Nexus: Tax nexus refers to the connection or presence that a business has in a particular state, which establishes the obligation to collect and remit sales tax. While each state may have its own definition of nexus, it is commonly associated with a “physical presence.” This physical presence can encompass various elements such as having an office, employees, a call center, a warehouse, affiliates, storing inventory (including through FBA), drop shipping from a third-party provider, or temporarily conducting business in a state for a limited period. It’s crucial to consult with a tax attorney to determine if your business activities create a tax nexus and whether you need to address the resulting tax implications.
Complexities of FBA and Drop Shipping: Working with drop-shippers in different states and utilizing FBA for storage and fulfillment can introduce complexities and potential tax implications. The challenges of tracking such orders and determining tax nexus have led many sellers, including large ones on Amazon, to await a national sales tax resolution. The operational difficulties involved in these scenarios have made it challenging for sellers to accurately recognize and address tax nexus related to FBA and drop-shipping. While the situation is complex and awaiting simplification, it is important to be aware of the potential tax implications and seek professional advice for compliance.
Collecting Sales Tax: Once you determine that you have sales tax nexus in specific states, you have the responsibility to collect sales tax from buyers in those states and remit it to the respective state on a regular basis as required. Even if you choose not to use Amazon’s tax collection service, you are still obligated to pay the sales tax. It is essential to determine the applicable sales tax rate, including any local sales tax, which can vary depending on the buyer’s location. Some states have origin-based sales tax, where you charge the rate based on your business’s location, while others have destination-based sales tax, requiring you to calculate and collect the appropriate tax rate based on the buyer’s location within the state. Utilizing software applications can assist in calculating the correct amount of sales tax, but it is ultimately your responsibility to ensure accurate collection and remittance.
Inventory and Nexus: As an FBA seller, the inventory stored in Amazon’s warehouses can establish nexus in other states. The presence of inventory in a state is considered a physical presence, which triggers nexus and potential sales tax obligations. Different states may have varying guidelines and interpretations regarding inventory and sales tax nexus, but it is important to note that the existence of inventory in a state can create a tax liability. For instance, the state of Washington explicitly states that having inventory in the state establishes nexus. Therefore, it is essential to evaluate your inventory storage locations and assess the nexus implications accordingly.
Duration of Nexus: Once you establish nexus in a state, it continues until you officially notify the state that you are no longer conducting business there. Even if you no longer have inventory stored in a nexus state, you still maintain a nexus tax liability until you terminate the nexus relationship with the state. It’s worth considering the practicality of terminating nexus when you have no inventory in a state for a temporary period, as doing so would require filing for a new sales tax permit if inventory is reintroduced in that state. The decision to terminate nexus should be based on a clear understanding of your business operations and future inventory plans.
Amazon Tax Collection Services: Amazon’s tax collection services can simplify the process of collecting sales tax for FBA sellers. Let’s consider a scenario where you, as an FBA seller, have product inventory stored in Amazon’s fulfillment center in Washington state. Understanding that this creates nexus in Washington and necessitates the collection and remittance of sales tax, you register for a sales tax permit to comply with the state’s tax laws.
Now, what happens when a customer purchases a product from you, and it is shipped to them in Washington state from a fulfillment center located in another state? In this case, you might wonder if you still need to collect Washington state sales tax, and whether Amazon would automatically handle the tax collection.
The tax collection process through Amazon seller central can address this situation. If your account is set up to collect sales tax in Washington state, Amazon will collect the applicable sales tax on any valid orders placed by customers in Washington, regardless of whether the order is fulfilled from a center in another state.
However, it’s crucial to note that even if you have enrolled in Amazon’s tax collection service, you remain responsible for paying the sales tax to the appropriate state tax authority. While Amazon collects the sales tax on your behalf, you are still obligated to remit the tax to the state. This ensures that you fulfill your tax obligations and comply with the tax laws of the state where you have nexus.
Income Taxes: When it comes to income taxes, Amazon typically provides sellers with a 1099k form after the end of the year, usually in late January. You can also download this report directly from your seller central account.
It’s important to note that the 1099k figure represents unadjusted gross sales. This means it includes the total sales on Amazon without accounting for fees, rebates (for FBA sellers), refunds, and other factors. It even includes gift wrap and shipping charges. Don’t be alarmed if this number doesn’t match your accounting records because you should only record the amount that Amazon actually pays you as revenue.
As the seller, it is your responsibility to review your records and make necessary adjustments for tax purposes. Subtracting payment disbursements from the unadjusted gross sales can help you determine your expenses. It’s worth noting that the unadjusted gross sales figure is based on the shipment date, not the sales transaction date. So if an item is sold on December 30, 2014, but shipped on January 2, 2015, it will be reflected in the 2015 report, not the 2014 report.
To gain a better understanding of why the 1099k figure is what it is and how to calculate your net revenue, it can be helpful to review the IRS 1099k information, which explains the details and why it’s important to consider your costs:
Various tools are available for sellers to track, manage, and import Amazon payments and expenses into their accounting software. While we won’t delve into specific applications here, we can provide a list of companies and software tools that you can explore to determine if they could benefit your business.
It’s worth noting that seller central reports do not naturally integrate with popular accounting software packages like QuickBooks or Peachtree. Therefore, you’ll need to manually manipulate the exported data to import or enter it into your books.
Another option is to use a bridge program that can gather the data from seller central and import it into your accounting software. However, it’s important to exercise caution as the imports may not align perfectly with your bookkeeping system. Double-checking the data synced to your books through a third-party program is recommended to ensure accuracy.
Finding the right accounting software solution and integrating it with your Amazon seller account can help streamline your financial management processes and ensure accurate record-keeping for tax purposes. Consulting with a professional familiar with e-commerce accounting can provide valuable guidance in selecting and implementing the most suitable software for your specific needs.
Check out these software applications to help you with your accounting for your Amazon business
Outright (GoDaddy bookkeeping)
QuickBooks online & QuickBooks desktop
Sales tax software
Check out these two main software applications to help you with your sales tax for your Amazon business:
Visit Our Staffing Solution
For Sales Tax Filings go to Prestige Auditors for help