When it comes to running an Amazon business the task you most likely put to the back of your mind each month is your bookkeeping. Or maybe you just outsource it to your Amazon accountant or bookkeeper entirely. And that’s fine, right?
Well, not always. You see, after working with over 8,000 Amazon sellers and hundreds of e-commerce accountants to automate their bookkeeping I noticed that lots (and I mean lots) of sellers get bookkeeping plain wrong.
The painful thing is that most of them didn’t even know. They thought they were doing it right. I mean sure they had that niggling feeling in the back of their mind that it didn’t always balance exactly with the deposits into the bank but they thought it was 95% of the way there. Turns out, it wasn’t and that costs them…big time.
Why Accurate Bookkeeping Matters
When you accurately account for your Amazon sales and fees you in turn accurately account for your tax liabilities, but you also give yourself a much-needed understanding of your business as a profit-making enterprise.
I don’t know about you, but I’m in business to make money. Sure, you can have fun along the way and help improve people’s lives through great products and all that jazz, but when it comes down to it, businesses are 99% of the time there to make money.
If you aren’t accounting for your Amazon revenues correctly then how do you know if you’re paying the right taxes? How do you know which marketplaces are most profitable for you? How can you grow your business if you don’t know where your best growth opportunities lie?
Top 3 Amazon FBA Accounting Mistakes
- Entering Net Deposits as Sales
- Using Amazon Date Range Summary Reports
- Using the Same VAT or GST Rate on all Sales (UK & AU Sellers)
Entering Net Deposits as Sales
As an Amazon seller if you’re simply taking the amount that Amazon deposited into your bank account and entering that as your sales figure. This is a mistake. It’s cash accounting and if you’re thinking about selling your business one day then buyers will want you to re-do your books in accrual accounting format.
Deposits from Amazon are made up of various different transaction types:
- Amazon Sales
- Amazon Refunds
- Amazon FBA Reimbursements
- Amazon Sellers Fees
- Amazon FBA Fees
- Amazon Storage Fees
- Amazon PPC
- Amazon Lending
- Amazon Reserved Balances
Simply accounting for the net deposit from your Amazon seller account into your bank account then you’re not accounting for any of the other things correctly and this could lead to you over-declaring or under-declaring your profits and ultimately end up with you paying too much tax (or VAT if you’re in the UK).
Separating out Amazon fees for example, and doing so by fee type, is a great way to keep an eye on which fees are rising and provides you with the option to try and reduce some of them. For example, if you see you have high storage fees for one month you can look at some of your FBA inventory that has been in the warehouse longer than 90/180 days and considers throwing a sale to clear through some of it and avoid further losses in excessive fees.
Using Amazon Date Range Summary Reports
If you download your date range summary report from Amazon each month and take the “Income” total and “Expenses” total and enter those in your accounting software then this is another problem.
The issue with summary sheets is that they are never going to reconcile with the deposits Amazon has made into your bank account. Amazon typically pays you every 14 days and even if you try to generate a date range report for the same 14-day period they will never balance.
If you are using these reports you’ve probably ended up creating a clearing account or virtual bank account for Amazon where you assign all your income and expense amounts. No doubt you’re always left with a balance in this clearing account, so you’re never 100% confident that their figures are accurate. Am I right?
Using the Same VAT or GST Rate on all Sales (UK & AU Sellers)
If your business is established in the UK or Australia and you’re not separating out export sales or sales where Amazon has collected and remitted the tax directly to the tax authorities then this is a big mistake.
You see, even though you may think you only sell to customers in your country you will most likely be mistaken if you’re using Fulfilment by Amazon or FBA. When you use FBA Amazon will automatically turn on their Global Shipping Program by default (unless you specifically opt out). This essentially means that Amazon is shipping your products to customers all over the world and when they do so they treat those sales as exports and they are therefore Zero Rated for UK VAT or GST Free Income if you’re an Australian seller.
Amazon doesn’t collect any UK/AU tax from the customer on these sales and if you don’t identify and separate those sales out each month, you’ll end up paying VAT or GST on them. The worst part is it’ll end up massively affecting your profit on those sales since you’ll effectively be paying the tax out of your own pocket.
How to Avoid these Mistakes
My guess is that if you’ve been reading this and you are actually making some of these mistakes by now you’re probably wondering how to do your Amazon accounting properly, right? The good news is that now that you know you’re making these mistakes, you can actually do something about it and ensure that you pay the right amount of tax from now on.
My advice boils down to 3 things:
- Use the right reports
- Be detailed enough but not too detailed
- Consider automation
Use the Right Reports
It all starts with using the right information from Amazon to accurately account for your sales, refunds, fees, and all the other transactions too. If you’re early on in your Amazon seller journey and want to tackle this yourself then as long as you’re willing to spend a half day each month head down in a spreadsheet then it is doable.
You’ll need to start with the Amazon Settlement report which you can download via
Amazon Seller Central Account > Reports > Payments > All statements
This report will list all the transactions that occurred during each of your payouts from Amazon. With a bit of pivot table magic in Excel, you can sort it all into the various transaction types and use that as a summary to enter into your accounting software.
*If your business is based in the UK then you’ll need to also use the Amazon VAT Transactions Report to separate out your export sales and any sales where Amazon collected and remitted the VAT directly to HMRC so that you can apply the correct VAT rates accordingly.
**If your business is based in Australia then you’ll need to also use the All Orders report to separate your sales to Australia and those that were shipped to customers outside Australia so that you can apply the correct GST rates accordingly.
Be Detailed Enough but not too Detailed
When it comes to your Amazon accounting it’s important to go into enough detail so that you can be confident you’re paying the correct amount of tax and that you can analyze your financials for growth opportunities. Equally important is to not go into so much detail that you get analysis paralysis.
You might be tempted to bunch all your fees together or to split out every last transaction type, both of these are going to make your life hard. You need to find a healthy balance somewhere between so that you can have enough detail to make great decisions on how to grow your business.
Whether you or your accountant or bookkeeper are doing your Amazon FBA accounting each month, one thing is certain – if you’re spending more than 10 minutes per month doing it, you’re wasting time.
With tools like Link My Books helping you to automate your Amazon accounting, there is simply no need for you to be spending time doing it manually. Not to mention that through automation you can gain unprecedented levels of accuracy to ensure that you only ever pay tax on the sales you should be.
Top Amazon Accounting Software Automation Tips
Listen up Amazon sellers, it’s 2022. Anything that you can outsource or automate in your business is worth doing in my opinion. Not only will it help you to free up time to spend on the aspects of your Amazon business that you truly enjoy but automation will more than likely do a better job of almost any task than you ever could yourself.
When it comes to Amazon accounting, not only is it complex and time-consuming, it’s boring too. So why spend your time doing it? Why pay your accountant or bookkeeper to spend hours downloading reports and manually entering data into a cloud-based accounting software such as Xero or QuickBooks? Especially when with tools like Link My Books, all of this can be automated in just a few clicks.
As a business owner, do yourself a favor and make today about getting your books in order. Make it about drawing a line in the sand and saying “I will no longer spend hours and hours each month stressing about reconciling my Amazon payouts”. Instead, say yes to automation and to gaining clarity in your bookkeeping, today.
About Link My Books
Link My Books is software that plugs into your Amazon account and Xero or QuickBooks to accurately automate your Amazon accounting. Not only does it save you time each month versus manual bookkeeping, but it can also help you to reduce the likelihood of overpaying tax due to inaccurate accounting.