The Ultimate Guide
Accounting for Amazon FBA Businesses:
Understanding Bookkeeping For Amazon FBA Businesses
Intro To Amazon Seller Bookkeeping & Accounting
While Amazon seller bookkeeping is the most exciting part, FBA Amazon sellers need to know its importance to better keep up with the business finances.
An Amazon FBA seller refers to the eCommerce business owner who sells and outsources inventory management to Amazon through the FBA program. The role of the Amazon FBA seller is to send products to Amazon warehouses for order fulfillment.
Of course, not all FBA businesses survive on Amazon; some fail every year and don’t wish to sell more. Behind this, the primary reason is the poor amazon bookkeeping and accounting.
Having proper systems and processes for accounting and bookkeeping will give your Amazon FBA business confidence in wise decision-making.
Let’s discuss more in detail:
What is Amazon Bookkeeping?
Amazon seller bookkeeping refers to collecting, recording, and storing the day-to-day financial transactions of merchants. The most common transactions for Amazon sellers are sales, purchases, shipping costs, loan payments, and advertising spending.
Basic accounting information and terms you should know as an Amazon FBA seller:
Receivable Accounts: It outlines the money due from the customer end. For products Amazon sellers sell, they will collect the “receivables” to track and monitor them to ensure the money comes on time.
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By the end of this Strategy Session, you will have a clear understanding of the next steps you can take for your business to take advantage of the tax deductions you are missing out on.
Amazon FBA sellers must stay on top of the Amazon FBA account receivables to maintain a healthy cash flow. A smooth cash flow allows sellers to better plan for future expenses.
Accounts Payable: Payable accounts refer to the money or debts businesses need to pay. It includes all the expenses, and handling them the best way is a vital component of business finances.
Sometimes seeing how much to owe is daunting, but having a clear picture of what is due and when it is due, helps FBA businesses pay payments on time and accurately. It also avoids paying off twice.
Also, paying off invoices earlier helps businesses earn a discount. So it is good to stay above accounts payable.
Inventory: Inventory management is the backbone of the Amazon business.
How many products do you have in stock?
How do you keep up with inventory to meet current customer demand?
There is a need to be attentive to all inventory and monitor them regularly. Keeping track of everything is a great way to determine how much stock you have to carry on in the coming months.
Purchases: Purchases are an integral component that works as the cost of goods sold. The best way to determine the overall profits, minus purchases from sales.
As an Amazon FBA seller, you need to account for all business-related purchases, including office supplies, equipment, subscriptions, and others.
Loan Payable: Most FBA Amazon sellers borrow loans to start the business, and many hire business essentials. Everything needs to be adequately tracked, from how much you borrowed to whom you borrowed to what you owe.
Sales: Almost every Amazon business needs to keep a proper sales record. This will help you show what cash you have with you and where your business is.
Importance of Bookkeeping & Accounting For Amazon FBA Businesses
Why Good Bookkeeping Matters For Your FBA Amazon Business?
If the inventory is too low, the chances are higher you will miss out on the sales.
To better keep up with numbers that matter most for your business’s financial health, bookkeeping is the only way.
How Much did you spend on new inventory?
How much total sales and money did you make from customers?
How much are you paying to Amazon?
Bookkeeping can help you handle some of the most crucial business aspects. Bookkeeping and accounting go hand in hand to help you record, organize, and understand what’s happening inside your business.
While there are so many ways to keep things on track, bookkeeping is the one that helps keep things more organized. It is the best method of tracking financial transactions to monitor how your business is doing and will do over time.
So Below are a few reasons you need good bookkeeping for your FBA Amazon Business:
To Know The Net Profits: Your net profit shows the exact picture of your business’s financial health. It exactly tells you whether you are making more money than you spend. Net profits are the gross profits subtracting from operating expenses.
Simply put, total income minus all expenses.
To Monitor The Business Financial Health: How much money do you make monthly? How much did you spend in the previous month? How much shipping expense are you dealing with? Is your business financial report healthy? Amazon seller bookkeeping is the best way to know, and it allows you to maintain accurate and complete records of financial transactions on time.
To Better Determine Tax Deductions: Everyone wants to pay less in taxes. And to do this, finding tax deductions help you save a lot. Tax deductions are business-related expenses you’ve made over the year that you can consider subtracting from your tax bill. Many tax deductions are specific to eCommerce, but you can’t take advantage of them if your expenses aren’t organized.
To Avoid Expensive Mistakes: You will never know how much money you have lost making expensive mistakes. So this is why you need to keep your books updated, as these will help you avoid making costly mistakes. When it comes to bookkeeping, avoiding all the expensive mistakes ensures all your financial records are in order.
How To Do Bookkeeping For An FBA Amazon Business?
How To Do Bookkeeping For FBA Amazon Businesses?
Maybe you are not very good at managing financial numbers on your own, but the idea of having your bookkeeping and accounting makes sense, and it is the only way to keep records accurate and well-organized.
There are two main options for accounting for your FBA Amazon business: you can do it yourself or hire a professional to do it for you.
When you have a professional for bookkeeping and accounting, it takes all the burden off your shoulders.
You don’t need to worry about anything being done on time and correctly. Outsourcing your bookkeeping and accounting to professionals allows you to focus on other business aspects such as product development and marketing.
Also, it is true that bookkeeping is not a skill one grasps overnight. Rather than investing your time and effort in learning, having a professional on your side is much more affordable. With them, you will be surprised by how affordable, and professional bookkeeping services are.
Cloud-Based Bookkeeping & Accounting
In the case of cloud-based bookkeeping and accounting, you have to keep your business books online. That includes records of income and expenses and assets and liabilities.
The information is encrypted, much like a bank’s, so only people with the login can view the data. Most systems come with tools for quoting, invoicing, managing bills, and more.
It’s good to hire an expert who can better take care of your online business’s bookkeeping functions. From Cash reconciliations, vendor setup, and charts of accounts to managing inventory value and depreciation reports, an expert can provide clean books that you would be proud to show your parents.
Benefits of Cloud Bookkeeping & Accounting
Shifting bookkeeping and accounting from desktop to cloud is a big step in financial management. Since it helps eliminate various challenges associated with traditional accounting, moving your accounting to the cloud brings countless benefits.
Below Are Some Of Them:
Access Accounting From Anywhere: Cloud accounting allows you to view the essential financial numbers from anywhere. It eliminates the need to work from a single central office computer. All you need is to use a web browser on your desktop to access the accounts.
Access To Real-time Information: You can achieve real-time reporting by keeping your bookkeeping up to date. There is no need to look at your outdated data that is from weeks or months ago, and you will easily get a quick summary of the company’s current financial situation.
Secure Sharing Of Data: With cloud accounting, you can more effortlessly access your accounts. It enables you to get real-time and secure access to all of your financial data. This is faster, safer, and provides you with information that is helpful in the future.
Key Areas Where You Can Utilize Cloud Accounting Include:
Workload Reduction: The cloud accounting ecosystem enables automatic bookkeeping, cash collection, etc, all of which significantly reduce your team’s administrative workload.
Getting More Out Of Your Financial Records: You can have faster access to real-time reporting and financial records, giving you the facts, insights, and crucial data you need to make wise decisions.
Best Bookkeeping & Accounting Tips & Practices
Bookkeeping Tips & Practices For Amazon FBA Business
Below are a few tips and tricks that help you keep everything organized and increase the chances of business success.
Break Down Big Tasks Into Smaller Ones: No one wants to pay for the due taxes as it comes with hefty fees and penalties, and this is the reason almost every taxpayer needs to keep a proper track of incomes and expenses on either a monthly or weekly basis.
Knowing how much money is spent on materials makes it easier for sellers to discover the inconsistencies quickly. Amazon seller bookkeeping helps you in this as it allows you to determine whether you should charge more or less for the goods.
Regularly completing your accounting allows you to quickly determine how much time and effort you are investing in your business. The reason sellers do not easily track their finances is that going over the books is not that easy. To make it simple, breaking down big tasks into small ones can make this more manageable.
You can also make a schedule to manage better financial aspects, one day to manage the income and expenses, another day for the better evaluation of finances. Making a schedule helps you cover all the aspects with ease.
Separate Business and Personal Finances: Amazon FBA sellers need to be aware of the risks associated with handling their funds. It is good to separate both your personal and financial finances to avoid risks.
Also, you make sure to keep your finances separate if you are running a sole proprietorship. When you keep your finances separate, it becomes easy to do bookkeeping. The better you manage your finances, the more you save your time.
Pay Attention to Taxes: Taxes are one of those important considerations that Amazon FBA sellers should not overlook. Failure to understand the taxes can put you in more trouble in the future. Amazon FBA sellers are responsible for collecting the sales tax; thus, they need a “nexus” or physical presence in that state.
After discovering where you have a sales tax nexus, you can apply for a sales tax permit in that state and begin collecting the taxes from consumers. The expense of collecting and remitting tax can outweigh the revenue received by the tax.
You can avoid collecting if you have a nexus of a particular state and are selling taxable goods, but the tax is negligible. Just keep track of the sales volume frequently.
Outsource When You Are Fully Ready: If you feel your time and efforts are better contributed to the business activities than keeping with bookkeeping tasks, it’s time to outsource. When you think about outsourcing, hiring a bookkeeper, an accountant, or Amazon FBA CPA is a wise move as they help you keep proper track of financial numbers on your behalf.
While bookkeepers and Amazon FBA accountants also handle the same work, their skill sets and levels of expertise matter, a CPA or certified professional will help fulfill all your tax needs.
As a successful Amazon FBA business, it is true that you can’t do everything. If Amazon seller bookkeeping doesn’t fit your schedule, let someone handle it for you. You can also take advantage of the tax deductions you are missing out on.
Specific Bookkeeping Considerations For FBA Amazon Sellers
Compared to brick-and-mortar stores, eCommerce sales are quite complex to handle. That’s why we have a few extra considerations for Amazon sellers when it is all about bookkeeping and accounting. Here we go:
A cash-based accounting system is highly used among small businesses but isn’t the best choice for Amazon FBA sellers. Cash accounting only focuses on recording revenue and expenses when exchanged, which can be problematic for FBA businesses that keep stock.
For Amazon FBA business, it is crucial to have a clear picture of Amazon’s business financial health. But if you employ cash accounting, it isn’t easy to justify your ongoing profitability as monthly numbers keep varying.
Accrual Basis Accounting
It differs from the cash system, allowing the recording of revenue and expenses. This accounting type gives a clearer picture of incomes and expenses over time. It is the most preferred method required by FBA businesses with inventory.
Accrual accounting will help group all the transactions together to provide a more accurate picture of monthly sales.
Performing Accrual accounting Leveraging Smart Automation – Cloud-Based Accounting
A wide range of resources is designed to help Amazon FBA sellers handle accurate books in less time. For optimized and industry-standard bookkeeping, you need cloud-based accounting, which is a crucial step for any FBA Amazon seller.
Cloud-Based Accounting Benefits Amazon FBA Sellers With:
A clear picture of business financials.
- Instant reports and insights.
- Access to books anytime, anywhere.
- Automatic data transfer.
- Books are secured by encryption technology.
Make sure you comply with sales tax requirements
When you are selling in several states, you must account for various sales tax obligations. While so much accounting software can help you keep track of sales tax in books, a spreadsheet alone can’t tell you which papers each state requires at tax time. This is the reason businesses need to understand the fundamentals of sales tax liability.
Final Key Takeaways
Let’s Recap Some Of The Key Takeaways:
Managing Amazon accounting is easier if you establish a solid foundation of all processes early on. Now that you have made it to the end of the guide, let’s recap some of the key takeaways:
Bookkeeping and Accounting for FBA Amazon sellers are more important than ever. It is something that allows sellers to monitor how the business is performing from time to time.
Accurate and up-to-date bookkeeping allows sellers to prepare themselves for sales taxes promptly.
- You can either consider doing bookkeeping on your own or hire a professional. But if we talk about the faster and cheapest option for Amazon sellers, then it is professional service.
FAQs (Frequently Asked Questions)
Why Bookkeeping & Accounting Matter for FBA Amazon Sellers?
Bookkeeping and Accounting matters for FBA Amazon sellers as it allows them to track their finances properly, including the sales and expenses. It is vital for those looking to manage their business and quickly decide where to invest the resources.
What Is The Most Preferred Way To Do Bookkeeping For Your FBA Amazon Business?
For FBA Amazon businesses, bookkeeping is essential, and the best way to do it depends upon the specific needs of your business. However, bookkeeping can be best handled by an expert who is already involved in bookkeeping services. Hiring a professional for bookkeeping ensures you keep up with accurate records of sales and expenses.
When To Hire A Bookkeeping Professional For Your FBA Amazon Business?
Don’t let hefty penalties and fees disrupt your business. If you are completely confused and keeping up with sales tax compliance all alone is tough, then you can choose to hire a professional for this task.
Accurate and up-to-date reporting is essential along with financial statements, and you can do it better with a professional. FreeCashFlow.io is here to help, providing the expert Amazon bookkeeping and accounting services, giving you more time to focus on business growth.