As an Amazon seller, keeping accurate and organized financial records is crucial for your business success. Proper Amazon bookkeeping enables smoother tax filing, maximized deductions, and better insight into your business performance. However, it’s easy to let sloppy record keeping habits sneak in, especially as your Amazon business grows.
Don’t let messy financial records slow you down! This comprehensive guide breaks down the fundamentals of solid record keeping tailored for Amazon sellers. Follow these best practices and your books will be audit-ready year-round.
Set Up Proper Accounting Software
The foundation of organized financial records is the right accounting system. While Excel spreadsheets can work for very small sellers, most Amazon entrepreneurs will benefit from dedicated accounting platforms like QuickBooks Online or Xero.
Accounting software allows you to:
- Track income and expenses in real-time
- Generate financial statements and reports
- Reconcile bank and credit card transactions
- Create and manage invoices
- Run tax reports when filing time comes
Plus, data flows directly from Amazon for FBA fees, sales, refunds, advertising, and other transactions. This automates much of the recording process.
Just be sure to choose software that easily integrates with Amazon’s data feed. QuickBooks Online and Xero have native Amazon integrations that pull transactions in automatically.
When evaluating software, also consider the learning curve, features for inventory management, sales tax handling capabilities, and mobile accessibility. Select the platform that best aligns with your business needs and technical abilities.
Establish Diligent Invoicing and Payments Processing Habits
To keep your books clean, you need to stay on top of recording both income and expenses on an ongoing basis. This means:
- Issuing invoices quickly for any wholesale or custom orders. Don’t let these pile up for weeks.
- Paying vendors and suppliers right away when invoices are due rather than letting them linger.
- Processing expense receipts like inventory, supplies, advertising, or other purchases into your accounting system frequently. Don’t let receipts disappear into a stack somewhere.
- Reviewing bank and credit card transactions at least weekly to identify any Amazon-related payments that need to be categorized.
Making transaction entries a regular habit prevents backlogs of unrecorded activity which can become overwhelming. Set aside 30 minutes each week to process the prior week’s invoices, bills, receipts, and categorize transactions.
Maintain Meticulous Inventory Accounting
For Amazon sellers, inventory accounting can become complex, with movement between multiple warehouses, shipment centers, and fulfillment facilities. Careful organization is vital for proper COGS (cost of goods sold) deduction.
Follow these inventory accounting best practices:
- Record inventory purchases when the order is placed, not when items are received. This matches expenses with the correct tax year.
- Track inventory transfers between locations. Assign costs correctly as inventory moves through warehouses.
- Perform periodic counts to confirm book balances match physical quantities. Investigate and document any discrepancies.
- Maintain organized inventory records, including vendor names, purchase dates, costs, product descriptions, SKUs, and locations. This simplifies tax-related inventory basis documentation.
- Implement unique item numbering/labeling and bin organization systems within warehouses for easier physical counts.
While inventory accounting may seem overwhelming at first, create a logical process for your business. The upfront effort saves hassle come tax time.
Stay Diligent with Expense and Deduction Tracking
In addition to inventory costs, you likely incur many other deductible Amazon expenses – advertising fees, shipping supplies, mileage for sourcing, home office utilities, and more.
Careful categorization and documentation of these expenses enable maximizing your deductions and lowering taxable business income:
- Create standard expense categories or classes in your accounting software like Office Supplies, Packaging Materials, Advertising, Tech Subscriptions, Mileage, etc. Stick to this classification system.
- Scan or photograph all receipts and documentation. Organize digitally by expense category and tax year. Cloud storage apps like Dropbox help access across devices.
- Record expense purpose in accounting system transaction descriptions. Include details like “Mileage to FedEx for returns 7/9/2022”.
- Set reminders to capture periodic expenses like quarterly subscriptions as they are due to avoid forgetting.
- Follow all other documentation requirements like logging miles driven, business travel expenses, home office use details, etc.
Consistent organization of expense records eliminates “shoebox accounting,” which often leads to overlooked deductions.
Reconcile All Accounts Frequently
Reconciliation is the process of comparing your recorded transactions and account balances to bank/CC statements and Amazon reports to identify any discrepancies. Frequent reconciliation ensures all activity is captured accurately in your books.
- Reconcile credit cards at least monthly. Compare statement charges and payments to accounting system entries and categorize anything missing.
- Reconcile bank accounts at least monthly. Match all deposits from Amazon payments, expense withdrawals, transfers, etc., to your books.
- Review Amazon Seller Central account activity weekly for fees, refunds, FBA charges, and other transactions that may be missing from your records.
- When you find discrepancies, log adjustments in your accounting software to match the bank/CC statements and Amazon data.
- Investigate and document any undisclosed transactions. Update your records for the correction.
Faithfully following these practices clears up mysteries that can complicate taxes and cause inaccurate reporting of income and expenses.
Leave an Audit Trail with Careful Categorization
For both expenses and sales, take time to carefully categorize transactions in your accounting system. Avoid dumping everything into generic buckets like “Miscellaneous Expense” or “Amazon Sales.”
Instead, use specific categories like:
- Advertising – Sponsored Products, Headline Search Ads
- Returns and Refunds
- Repackaging and Labeling
- FBA Pick and Pack Fees
- Outbound Shipping Costs
- Warehouse Rent
- Product Photographs
- Trade Show Fees
- Third Party Inspection Services
Likewise, with break out sales by product line, brand, or other groupings relevant to your business. Detailed categorization simplifies activity review and sales tax reporting. It also shows the IRS you have a systematic approach to recording transactions.
Set Timelines for Regular Reviews
Even with the right systems and habits, errors and omissions still occasionally occur in small business accounting. That’s why regular reviews are critical for identifying discrepancies or unusual transactions before they snowball into bigger issues.
- Review income and expenses at least monthly. Does the data align with expectations? Fluctuations or outliers often indicate trouble spots.
- Examine sales tax collected/paid quarterly. Look for unreasonable variances that may indicate miscalculations.
- Conduct inventory counts and price testing periodically. Compare quantities and costs to accounting records.
- Review accrual-related items at year-end, like sales cut-off between December and January. Ensure revenue and expenses are accrued to the proper tax year.
- Meet with your CPA annually to review accounting methods, sales tax compliance, expense documentation, and other financial practices. Identify any weak spots.
Building consistent review points fosters proactive data verification, not reactive fire drills when tax time comes.
The Bottom Line
Although record keeping may not be the most glamorous business task, precision and consistency in your financial documentation pay major dividends at tax time. Following the bookkeeping best practices outlined above will help Amazon sellers:
- Maintain tidy books year-round
- Simplify tax filing with accurate records
- Maximize deductions claimed
- Clearly show consistent business practices if ever audited
Set your business up for success this tax season and beyond by implementing solid financial systems early on. Let us know if you need help translating these bookkeeping fundamentals into action!
