Amazon Accounting & Bookkeeping Guide

Accounting and bookkeeping for an Amazon storefront is more complicated than it is for a traditional brick-and-mortar business.

It can involve managing inventory across different locations, dealing with complex sales tax/ VAT requirements, and reconciling payments and a myriad of fees from the Amazon platform.

Our guide is here to help! Whether you’re an Amazon seller wanting to understand how to do your books, or an accountant looking to correctly record Amazon sales in QuickBooks or Xero, you’ll find the information you need in the table of contents below.

Still have questions about Amazon accounting? You can always reach out to the A2X team at contact@a2xaccounting.com.

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Getting started with Amazon accounting and bookkeeping

Unsure where to begin with accounting and bookkeeping for your Amazon storefront? Don’t worry! We’ll guide you through the basics.

What’s the difference between accounting and bookkeeping?

Bookkeeping is the process of recording all your business transactions, including sales, expenses, and payments. For an Amazon store, this means tracking sales data from Amazon, recording fees and shipping costs, and monitoring inventory purchases and returns. It’s about keeping your financial data organized and up-to-date.

Accounting takes that financial data and analyzes it to create reports, such as Profit and Loss statements, balance sheets, and tax returns. For an Amazon store, this involves interpreting sales trends, calculating cost of goods sold (COGS), and understanding the impact of Amazon fees on your profitability. It’s about using the numbers to assess the financial health of your business and make informed decisions.

In short, bookkeeping is about recording data, and accounting is about using that data to understand and manage your business finances, especially within the unique context of an Amazon storefront.

Why am I required to do accounting and bookkeeping for my Amazon store?

Accounting and bookkeeping are crucial for Amazon sellers for several reasons:

• Compliance – You must adhere to tax and financial regulations in every region where you operate.
• Business visibility – Accounting and bookkeeping will help you gain a clear view of your store’s financial operations and performance.
• Better decision making – Understanding business performance will help you make informed decisions for scaling and directing your ecommerce venture.
• Product pricing and cost determination – Accurately price products and determine costs to ensure profitability.
• Growth and profitability support – Timely and accurate financials provide essential data to support business growth and profitability.

While this list isn’t exhaustive, maintaining accurate accounting and bookkeeping is essential for achieving success in your Amazon business.

Your specific accounting and bookkeeping obligations will vary based on factors such as your location, business type (sole proprietorship, partnership, LLC, or corporation), and whether you are registered for sales tax, VAT, GST, etc.

We strongly recommend consulting an accounting or bookkeeping professional who specializes in working with Amazon sellers to understand your tax requirements.

Regardless of your Amazon business classification and tax registration status, it’s wise to start with basic accounting and bookkeeping activities.

For bookkeeping, this includes:

• Separating business finances – Keep your business finances separate from your personal finances.
• Capturing all transactions – Maintain detailed and accurate records of all financial transactions, including income, expenses, and payments.
• Regular reconciliation – Regularly reconcile bank transactions and Amazon transactions to maintain accurate financial records.

For accounting, this includes:

• Preparing financial statements – Create essential financial statements such as profit and loss statements, balance sheets, and cash flow statements.
• Filing tax returns – File accurate and timely tax returns according to your business’s legal structure and ensure compliance with all relevant tax laws and regulations, including marketplace facilitator tax obligations.

Can Amazon manage the accounting/bookkeeping for me?

No, Amazon does not offer the functionality to manage your storefront’s accounting and bookkeeping.

While Amazon provides the data you need for accounting and bookkeeping purposes, these reports alone do not meet the standards required for full accounting and bookkeeping compliance.

Relying solely on Amazon reports and data as your “source of truth” for understanding your store’s performance is also error-prone because these reports may not capture all financial activities, such as external expenses, multi-channel sales, or detailed tax implications, resulting in an incomplete and potentially misleading view of your business’s overall financial health.

To ensure accurate and comprehensive financial management, it’s essential to integrate Amazon data with other financial information using accounting software. You may also need to seek professional accounting services.

Do I need accounting software for my Amazon store?

If you’re running a small Amazon store with low transaction volume, you might be able to manage your accounting and bookkeeping using a spreadsheet. However, spreadsheets require manual updates and are prone to human error.

We strongly recommend using accounting software for your Amazon store because it simplifies accounting through automation. With just a few clicks, you can generate essential reports like Profit and Loss statements, balance sheets, and cash flow statements.

What’s the best accounting software for Amazon sellers? The choice depends on your specific needs, but most Amazon stores use QuickBooks Online, Xero, Sage, or NetSuite. Your decision should consider factors such as business size, location, and feature requirements.

One important factor to keep in mind when selecting accounting software for your Amazon store is that many accounting tools do not directly integrate with Amazon. This means you’ll need an external tool, such as A2X, to transfer your Amazon data from Amazon Seller Central into your accounting software. This integration ensures accurate and comprehensive financial management.

Cash vs. accrual accounting for Amazon

Cash and accrual accounting are two methods you can use to manage your Amazon store’s accounting.

In cash accounting, transactions are recorded when cash is actually received or paid out. For Amazon sellers, this means that sales are recorded when the payment is received from Amazon, and expenses are recorded when they are paid. This method is beneficial for small businesses with straightforward transactions, providing a real-time snapshot of cash on hand. However, it may not accurately reflect the business’s financial health if there are outstanding receivables or payables.

Accrual accounting is considered best practice for ecommerce accounting. In accrual accounting, transactions are recorded when they are incurred, regardless of when cash is exchanged. For Amazon sellers, this means that sales are recorded when the order is placed, not when payment is received, and expenses are recorded when they are billed, not when paid.

The accrual method provides a more accurate picture of profitability and long-term financial health, as it matches revenue with the expenses incurred to generate that revenue. With the right tools, accrual accounting can be managed efficiently, helping Amazon sellers make informed decisions about their business operations.

Do I still need to manage tax/VAT if my store’s transactions fall under Marketplace Facilitator rules?

Marketplace facilitator tax/VAT rules require online marketplaces (like Amazon or eBay) to collect and remit sales tax or VAT on behalf of sellers for certain transactions conducted through their platforms. These rules simplify tax compliance for sellers by shifting the responsibility of tax collection and remittance to the marketplace.

However, even if your Amazon store’s transactions fall under marketplace facilitator rules, you still need to manage tax/VAT (even if your collection and remittance responsibilities are reduced).

Your Amazon sales tax/VAT responsibilities should still include:

• Keeping accurate records of all transactions, including those where the marketplace collects and remits tax on your behalf.
• Reporting Amazon sales on your tax returns, even though the marketplace is collecting the tax. This can vary depending on your local tax regulations.
• Remaining compliant with non-marketplace sales – if you sell through other channels (e.g., your own website), you are responsible for collecting and remitting tax/VAT for those sales, and staying compliant with all applicable local tax laws and regulations.
• Understanding the thresholds and obligations for tax/VAT in different jurisdictions, as this can impact your overall tax responsibilities.

We strongly recommend consulting a tax professional to better understand your specific tax/VAT obligations.

Do I need an Amazon accountant or bookkeeper?

Just like with accounting software, we strongly recommend that Amazon sellers work with an accounting or bookkeeping professional who specializes in Amazon businesses.

Because Amazon accounting and bookkeeping is more complex than it is for a traditional brick-and-mortar store, it’s crucial to find someone knowledgeable to ensure compliance and gain a clear understanding of your margins.

Where can you find an accountant or bookkeeper who works with Amazon sellers? Check out A2X’s Ecommerce Accountant Directory. You can enter information about your business or choose to “get matched” with an accountant or bookkeeper who is the right fit for your specific needs.

What makes Amazon accounting and bookkeeping complicated

We’ve mentioned that Amazon accounting and bookkeeping is more complicated than it is for a traditional brick-and-mortar store – why is that, exactly? Let’s dive into some of the reasons, and how you can overcome some of these challenges.

Lump sum settlements

Amazon settlements are made in lump sum amounts, but this total is not only made up of “sales” (and should not be entirely recorded in a “sales” or “income” account).

The settlement amount includes a mix of sales, fees, refunds, taxes, and other transactions. It’s crucial to break down these transactions and record them accurately in your Chart of Accounts.

If you were to report the entire lump sum as “sales,” you risk over- or under-reporting your revenue. This can lead to over- or under-paying taxes, and then result in inaccurate data about your business performance. Properly categorizing each component of the settlement ensures compliance, accurate financial reporting, and a clear understanding of your business’s true financial health.

How to reconcile: Amazon Seller Central provides reports that can help you understand the transactions that make up each settlement; however, downloading and reviewing each report and manually coding each transaction can take up a lot of time.

The solution? Integrating Amazon with your accounting software using a tool like A2X. After connecting A2X to Amazon and QuickBooks Online, Xero, or Sage, A2X will break down the transactions that make up each settlement and send that information over to your general ledger in your accounting software.

Then, reconciliation can happen in just one click. Easy!

Settlement periods

Amazon settlements may not align perfectly with your monthly bookkeeping periods, such as when a settlement crosses a month-end boundary (e.g., a settlement that spans August 28 - September 5).

Proper accrual accounting requires revenue to be recognized when it is earned, regardless of when the payment is received. This means you should record sales that occurred in August within August and sales from September within September.

Mismatches in revenue tracking can lead to inaccurate financial reporting. For instance, if there’s a mismatch between tracking revenue and the Cost of Goods Sold (COGS), it can distort your profit margins. Ensuring that revenue and expenses are recorded in the correct periods helps maintain accurate financial records and provides a true picture of your business’s financial performance.

How to reconcile: You could manually go into Amazon Seller Central to break down when sales were made, or you could use A2X. A2X will split the settlement data according to the month in which the sales or transactions occurred, and use a Carried Forward Balance account to facilitate reconciliation in the accounting system.

Fees and transaction types

Accounting for all of Amazon’s different fees and transaction types is challenging due to the platform’s complex fee structure and the variety of transactions involved. Sellers must account for reserve balances, commission fees, fulfillment fees, FBA fees, storage fees, and other Amazon-specific charges. Additionally, transactions include sales, refunds, promotional discounts, and sales tax collected by Amazon.

Every Amazon transaction must be accurately categorized and recorded for precise financial reporting. This complexity needs careful attention to detail and often requires specialized accounting tools or professional help to manage well.

How to reconcile: You’ll first need to ensure that all Amazon transactions are being captured. Then, each transaction type listed above will require a slightly different treatment to ensure it’s being recorded correctly in your accounting software. A2X can ensure all Amazon transaction types are captured and recorded so your books are accurate and up to date.

The following resources can help you account for different types of Amazon transactions:

• Amazon adjustments
• Amazon commission and selling fees
• Amazon delivery and transport fees
• Amazon fulfillment and storage fees
• Amazon order revenue transactions
• Amazon reimbursements
• Amazon reserve balances
• Amazon shipping fees
• Amazon subscription fees

Marketplace facilitator tax/VAT

Accounting for Amazon’s marketplace facilitator tax and VAT is challenging because these taxes are automatically collected and remitted by Amazon, which requires sellers to make precise adjustments in their accounting records.

Even though Amazon handles the collection and remittance, sellers must accurately differentiate between sales tax collected by Amazon and other transactions to avoid discrepancies and ensure their financial records are complete and compliant with tax regulations.

VAT compliance can be particularly complex due to varying rates and regulations across different regions and countries.

How to manage marketplace facilitator tax/VAT: A2X can help you ensure you’re capturing any marketplace facilitator VAT collected and remitted by Amazon. Learn more here.

Note: A2X does not provide tax/VAT advice and we strongly recommend working with a tax/VAT expert to understand your obligations.

Payable to Amazon/Successful Charge transactions

‘Payable to Amazon/Successful Charge’ fees refer to transactions where the seller owes Amazon money for various costs such as selling fees, FBA fees, shipping costs, and other service charges.

In these instances, Amazon will either 1) charge the seller’s credit card immediately for what is owed, or 2) simply carry over the debt into the next settlement, and charge the seller for the amount owed from the proceeds of the next settlement.

In both cases, it is important to reconcile these transactions accurately in your accounting system.

How to reconcile: Regardless of how Amazon charged the seller, A2X can help you capture any Payable to Amazon/Successful Charge transactions and account for them correctly. Get a detailed explanation for how to manage this process here.

Multi-currency reconciliation

If you’re selling in multiple marketplaces in currencies that are different from your home bank currency, then you’ll need to manage multi-currency transactions.This can be incredibly challenging due to exchange rate fluctuation, conversion fees, and tracking multiple currencies in your financial statements.

Use A2X to reconcile multi-currency transactions:

• Since A2X draws directly from Amazon marketplace events, the settlements will be fetched into A2X in the currency of those marketplaces.
• If Amazon is converting deposits to your home currency before depositing them to your account, then you need to enable the multi-currency feature in your accounting system. The conversion to home currency will happen in your accounting software, as that is where deposit is recorded.
• Xero, QuickBooks Online, and Sage can automatically calculate exchange rates and any related gains or losses. Enabling the multi-currency option in your accounting software saves you time on these calculations and will help to ensure compliance.
• Learn more about reconciling multi-currency transactions in your accounting software via the following links:
  • QuickBooks Online
  • Xero
  • Sage

COGS and FBA Inventory

Accounting for Cost of Goods Sold (COGS) and FBA inventory is challenging due to the complexity of tracking inventory across multiple warehouses, frequent real-time updates, and the need for accurate reconciliation. Variable costs, returns, and numerous Amazon fees further complicate COGS calculations.

Use A2X to manage: A2X can connect to FBA Inventory and generate monthly inventory reports, which show the status/location of each SKU at the end of each month. A2X can also show warehouse locations, and when a warehouse was first used (which can be used to determine sales tax nexus in the US).

A2X’s COGS feature is designed to help sellers better understand their gross profit margin (sales minus COGS). Accounting for the cost of inventory when it is sold provides a more accurate view on business profitability.

How to do Amazon bookkeeping

Amazon accounting reports and activities (e.g., building a Profit and Loss) are built off of good data, which comes from accurate bookkeeping.

For a step-by-step guide to Amazon bookkeeping in Xero, watch our webinar recording featuring Elver E-commerce Accountants.

If you have any additional questions about Amazon accounting and bookkeeping, don’t hesitate to reach out to the A2X team at contact@a2xaccounting.com.