Accounting for Amazon Sellers: The 5 Basics
Estimated reading time: 7 minutes, 30 seconds.
Selling on Amazon is a pretty exciting prospect for any entrepreneur.
But the road to making money on Amazon isn’t always smooth. It can be made easier with smart planning upfront - especially when it comes to how to do Amazon accounting.
This guide is an introduction to setting up your accounting for Amazon FBA. It will cover the first five steps that every new seller should take before diving into product research, purchasing inventory, or listing any items.
These steps are based on advice from Amazon sellers themselves and their accountants. They’ve been compiled from speeches by experts at industry events, and from A2X case studies, so that you have access to the best insider information right from the get-go.
Learn from their mistakes, their insights, and their advice for the best Amazon accounting practices.
In the first part of our Amazon accounting series, we’re covering the 5 basics:
Table of Contents
Let’s kick it off with how to start strong.
Getting set up: Amazon accounting software & business registration
First on the list from our experts and sellers is getting set up correctly from the start. What does this mean?
It means two things:
Registering your business
Many Amazon businesses start small as hobbies and morph into something bigger over time.
For this reason, it’s tempting to put off registering a company and paying taxes in the early days. But this isn’t the best way forward.
Registering your company can protect you from certain liabilities if things go wrong, and allows you to separate your business from personal income. As the business owner, you are wholly responsible for your legal and tax obligations.
Whether you think your business is ready for it or not, it’s wise to get registered.
Top tip: Always look for the most up-to-date information. Obligations change all the time, particularly regarding ecommerce sales tax, so don’t get caught out. It’s a huge advantage to have an ecommerce accountant to help you, at least in the beginning if not in the long term.
Extra resource: Check out this video from Catching Clouds on setting up your Amazon business properly from the start.
Taking your Amazon accounting to the cloud
While spreadsheets and paper systems are a free and easy way to get started, they are really only effective for managing small volumes of data. And even then, it’s time-consuming and easy to make mistakes.
If you’re serious about selling on Amazon, it is important to make sure that your systems are robust so that they can handle larger transaction volumes without running into issues.
Once a proper accounting system is set up, it doesn’t take any longer to do the books, but you get much more reliable data as a result.
In the past, digital accounting systems were operated on servers and company computers, which required constant backups and software updates. Now, most accounting systems are remotely hosted in the cloud.
This eliminates the need for duplicating accounts and updating software - or even downloading software in the first place. With cloud accounting systems, you can access your books from anywhere in the world, and securely share information as required.
Top tip: There are accounting software options out there that can start small and grow with you - your investment doesn’t need to break the bank. Check out the offerings of Quickbooks, Xero and Sage for your Amazon accounting.
Getting organized: Amazon business planning
Your accounting is just one of the many ways that having an Amazon business plan will benefit you.
Business plans help you align your goals with your budgets and actions. They are a sounding board throughout your business journey, can be adjusted over time, and give you a good place to start, refer back to, and measure progress.
A business plan, in short, helps you strategize and organize for now and for the future.
Another thing you need to keep organized is your Amazon documentation. This can be stored in your accounting software, but using an aggregator app like Hubdoc means every statement, bill, invoice, and receipt is captured, recorded, and uploaded via an OCR system before it gets there.
Top tip: In the financials section of your business plan, lay out exactly what you need to keep track of in your Amazon accounting. This will help you prepare for exactly what information Amazon will send you that you’ll need to keep in a safe place - and crucially, recognize any gaps that you’ll need to fill in yourself down the line.
Extra resource: Find our Amazon FBA business plan template right here with everything you need to include and how to figure it out.
Getting into the habit: Regular checks to avoid mistakes
Even with an optimized accounting stack (which we’ll explore next), it’s important to maintain your own visibility and understanding of your financials at all times.
So, make a date of it. And make it regular - not once a month.
It doesn’t have to take more than 10-20 minutes of your time, but checking in every day or week will help you stay on top of your business’ movements and performance, notice any issues more quickly, and gain a feel for any patterns.
Online retail is fast and competitive, quick to change, and requires attention to detail. By managing your accounts in small, regular increments, you can save time whilst getting to know your business better.
Top tip: Don’t count your inventory as an expense! This is a common Amazon accounting mistake. If you’re set up correctly from the start, and check in regularly, you should be able to fix any issues like this before they compound.
Extra resource: The penultimate guide in this series is all about common Amazon accounting issues and mistakes, and how to avoid them. So stick with us.
Getting to the next level: Optimizing your Amazon accounting automation
Integrating your Amazon accounting software with Seller Central is a great way to share data instantly between the two platforms. But actually using that data effectively requires significant manual hours and calculations - not to mention accounting skills that many ecommerce sellers don’t have.
Amazon bookkeeping can be hugely time-consuming and full of gaps, as seller Nick Losciuto found increasingly challenging:
“Bookkeeping was tying up way too much of my time… as we grew, it became much harder to do manual accounting. Amazon was also reluctant to provide us with much info on how to organize and to get everything accounted for.”
Nick sought extra apps and Amazon accounting integrations to solve the problem: To save him time and wipe some of the number-crunching off his team’s task list. But it wasn’t until he found A2X that much really changed:
“It was a relief. A2X was much, much easier than the other systems we were trying to use, so I was pretty surprised! It all worked seamlessly.”
A2X for Amazon automatically calculates every line item that goes into your Amazon deposits, crunching these totals into neat journal summaries to be sent to your accounting software. Books are organized via the accrual method, which is GAAP-approved, and the best way to get reliable data for robust forecasting.
With A2X, Amazon sellers have clarity over their sales, fees, income, expenses, costs of goods sold, sales tax collected and returns. Nothing is left to guesswork, everything is accounted for automatically and accurately.
Get ready to grow with books that can handle it with A2X.
Top tip: You can try A2X here for free and then pick a subscription that fits your business size. It can scale with you, expand across other ecommerce platforms and prevent your accounting software from slowing down as you grow.
Extra resource: Find out more about the ins and outs of A2X for Amazon from LedgerGuru CEO Brittany Brown in this video.
Getting help: Free Amazon seller accounting resources
For the best chance at nailing your Amazon FBA accounting, make use of the wealth of helpful resources online.
Here are just a few:
- Catching Clouds Academy - this series of paid online courses has been developed by Patti Scharf and the team at Catching Clouds. It is comprehensive and very insightful.
- Zoom! Bookkeeping Automation course - is a free online course by Jeremiah Kovacs at MuseMinded. Visit MuseMinded’s website for more information.
- Prefer listening? Check out our list of the top Amazon seller podcasts for 2021.
Plus a wealth of other A2X blogs and the rest of our accounting hub series.
Next in the Series…
This blog is part of the A2X Ecommerce Accounting Hub. Next up, learn about the best Amazon accounting software on the market, which you should choose and how to set it up.