Amazon selling is a great opportunity for many small business owners to make a name in the market. Thanks to the massive consumer base who shop on Amazon regularly, even the smallest businesses can benefit from the large crowds. The benefits of having a high revenue cannot be understated as well as the need for complex financial bookkeeping and reporting. Therefore, this bookkeeping activity is the top-priority assignment that every Amazon vendor should adhere to from the very early stages.
The guide provides an overview of the bookkeeping and accounting for Amazon sellers while working to support their business.
Accounting in bookkeeping means recording financial transactions done daily by any business. This includes recording and tracking of details such as the money the receiving customers (accounts receivable) pay you, the expenses you incur (accounts payable), the inventory that was purchased, the office rent, salaries, taxes, profits earned, and more.
Maintaining accurate books is crucial because:
• It provides a clear overview of the balance sheet and cash flow of your Amazon business. Forecasting makes it possible to have a solid ground on to base decision-making related to inventory management, growth strategies, hiring, etc.
• You need bookkeeping records to prepare tax returns, obtain financing from banks and investors, and defend yourself if any lawsuit comes up or you are audited by the IRS or any other supervisory body. Either shelter or partial books can lead to legal and financial crises.
• To get or to stay a selling opportunity on Amazon and to have access to special programs, you need to submit your financial statements. Books that have missing or wrong averages will give your account a hard time.
• Detailed records enable you to learn how to calculate unit contribution margin, lifetime customer value, advertising ROI, and other data to find the most useful metrics for your business performance.
The bottom line is, that accurate record-keeping will make your Amazon FBA operations more efficient, whereas a messy and incomplete one would inevitably jeopardize your business.
Getting Started with Bookkeeping
When it comes to accounting, many new entrepreneurs at the beginning of their journey through Amazon try to maintain financial records themselves using Excel or accounting software. Even though it is acceptable enough during the start, get somebody proficient in bookkeeping when you get to $100k per year of revenue. A bookkeeper eases up your sales while guaranteeing financial record keeping is accurate.
Select bookkeeping software such as QuickBooks Online or Xero that is a fast integration with Amazon Seller Central. Using the application’s features, for example, balancing the bank accounts, dealing with sales tax, and sending customer invoices. By contrast, employ an accounting firm that deals specifically with e-commerce businesses where you can get more one-on-one interactions.
Key Bookkeeping Responsibilities
• Prepaid Expenses: Inventory of expenses including insurance premiums, advertising fees, and Amazon seller fees among other advanced or periodic paid expenses.
• Inventory: Indorse all units bought off and pay shipping and FBA charges. Change the software version after every arrival, return, and other regeneration process.
• Revenue: Account for all the fees, taxes, returns, and refunds during the sales recording - daily. Reconcile with bank deposits.
• COGS: Estimate the cost of goods sold involving either production or purchasing of products sold.
• Expenses: Smartly allocate payroll, software, legal, rent, etc. expenses in the operating cost of business operations.
• Bank Reconciliation: Match the accounting book's figures with the actual figures in the business bank statements every month.
• Sales Tax: Keep sales tax database and payments in Amazon states and follow taxability rules.
• Reimbursements: Settle for the reimbursements from Amazon owing to the lost inventory and storage fees keeping in mind the proper documents.
• Financial Statements: Aid bookkeeping data in preparing profit/loss and cash flow and balance sheet statements.
The more your Amazon business grows and gets more complex, the more detailed the bookkeeping processes get. Being on the board means you are in the loop and have the financial visibility and control to make sound decisions.
Bookkeeping Best Practices
Along with doing the basics right, adopting these additional bookkeeping best practices can benefit Amazon sellers greatly:
1. Break down the expenses into a detailed view in departments, product categories, etc. that are easy to calculate and give a true profit margin.
2. Process periodic reconciliations of vendors’ accounts, credit card accounts, and payroll records aside from bank accounts.
3. Ensure the keeping of a logbook that can be used to track down transactions using notes and references.
4. File all invoices, contracts, and other supporting documents under the year folder for comfortable reference.
5. Establish controls by dividing employee roles and responsibilities to make them unable to stealthily make errors or rob the company.
6. Make use of built-in automation capabilities on accounting platforms to do things such as sending payment reminders, generating reports, and so forth.
7. A continuous observation and analysis of the reports will help in identifying the patterns that provide the leverage for business expansion.
8. Maintain uniformity in the selection of accounting methodology each year, please.
9. One of the primary challenges is the changing nature of tax norms, accounting standards, etc. for eCommerce, so you should associate with professionals to remain updated about the latest developments in this area.
As a new Amazon FBA seller, it is essential to make bookkeeping a priority from day one and keep the mindset of strong financial practices throughout the growth of your business. This will create a solid foundation for the long-term success of the business.
Trust the experts for your Amazon seller bookkeeping and accounting needs. Contact us today to learn how we can help you succeed.