A Comprehensive Guide to Amazon Accounting and Bookkeeping

• Reading Time: 16 Minutes
• Published: May 2, 2024
• Last Updated: February 7, 2025

In the era of the digital revolution, wherein ecommerce businesses and platforms are gaining popularity, Amazon reigns supreme. Amazon holds a dominant position as the largest online marketplace in the UK. But have you ever wondered about the financial intricacies of this ever-evolving platform? If not, then it is the right time to do so.

Starting your own Amazon business sounds great, but what if you fall behind due to ineffective accounting and bookkeeping? Too many Amazon sellers fail due to bad Amazon accounting and bookkeeping, but if you want to make millions out of this emerging platform it is essential to have a solid accounting system. Our blog will provide all the insights related to accounting and bookkeeping that can make your Amazon journey a breeze. So, let us quickly delve into the details!

How is Ecommerce Accounting Different?

1. High Volume of Transactions:

Ecommerce businesses often handle a high volume of transactions daily. This is primarily due to the continuous and scalable nature of online sales. Ecommerce accounting must be equipped to handle and record numerous transactions efficiently, making use of automated tools to ensure accuracy and minimise errors.

2. Sales Across Multiple Marketplaces:

Ecommerce companies frequently sell on multiple platforms, such as their own websites, Amazon, eBay, and others. Each platform may have different reporting formats, payment terms, and fees. Accounting for ecommerce needs to consolidate these diverse data sources into a unified financial statement, requiring specialised knowledge and tools.

3. Tracking Stock and COGS:

The dynamic nature of ecommerce, characterised by frequent sales, returns, and cancellations, necessitates precise stock level tracking and accurate management of the cost of goods sold (COGS). In ecommerce accounting, ensuring accurate COGS calculation is crucial for determining profitability and guiding financial strategies. Effective tracking systems and modern accounting software are essential tools that help maintain accuracy in these areas, facilitating better inventory control and financial clarity.

4. Inventory Management:

Inventory management is a critical component of ecommerce accounting that directly impacts operational efficiency and profitability. It involves not just tracking quantities but also strategically optimising inventory levels to prevent issues like overstocking or stockouts. Ecommerce businesses must employ advanced forecasting tools and inventory management systems that can adjust to changing demand patterns, thereby reducing holding costs and ensuring continuous product availability.

5. Refunds, Returns, and Omnichannel:

Handling returns and refunds is another significant aspect of ecommerce accounting. The process involves tracking returned items, updating inventory, and managing refunds or credits. Additionally, omnichannel strategies, where customers interact through multiple channels (online, in-store, mobile), add further complexity by requiring cohesive tracking across all platforms to ensure accurate financial records.

6. Complex Financial Matrix Reporting:

Ecommerce businesses must often report on a complex matrix of financial data due to diversified product lines, varying profit margins, multiple business locations, and different currencies. This requires advanced reporting capabilities to segment and analysis of financial results in various dimensions, providing insights for strategic decision-making and compliance.

 

 

What is Amazon Accounting?

Amazon accounting refers to the specific processes and practices involved in managing financial records and transactions for businesses selling on Amazon. This type of accounting is crucial due to the unique aspects of ecommerce and the complexity of Amazon’s selling and distribution models, including the Fulfillment by Amazon (FBA) program. Here’s a detailed overview of how Amazon accounting sets itself apart from other types of accounting.

How Amazon Accounting Sets Itself Apart?

Amazon accounting is distinct from traditional retail accounting due to several factors that arise from the complexities of ecommerce, especially on a massive platform like Amazon. Here is how Amazon accounting sets itself apart:

1. Transactional Volume:

Amazon sellers often deal with a high volume of transactions due to their global reach and massive customer base. Managing such a volume requires robust accounting systems and processes to ensure accuracy and efficiency in recording every sale, refund, and adjustment.

2. Source of Transactions:

Transactions on Amazon can come from various sources, including direct online sales, third-party sellers, and Amazon’s own FBA service. Each source has different financial implications, especially in terms of fees and revenue sharing, making the Amazon accounting process more complex.

3. Data Collection and Integration:

Amazon accounting relies heavily on the ability to collect and integrate data seamlessly. With Amazon’s API, sellers can automate data flow directly into their accounting software, reducing manual entry errors and ensuring real-time financial data is available.

4. Inventory Control and Accounting on Amazon:

Effective inventory management is essential in Amazon accounting. Amazon sellers need to maintain accurate records of inventory levels, compute the cost of goods sold (COGS), and keep track of inventory storage fees. The intricate inventory demands of Amazon, particularly the necessity to regularly replenish stock for FBA, introduce additional complexity to the accounting of inventory.

5. Multi-currency Transactions:

Handling multi-currency transactions is inevitable for sellers operating in Amazon’s global marketplaces. Accounting for currency exchange fluctuations and conversion fees becomes essential for accurate financial reporting and profitability analysis.

6. Accounting for Refunds, Returns, and Damages:

Amazon’s return policy means sellers frequently handle returns and need to account for these transactions. This includes tracking refunds, returned inventory restocking, and losses from damaged goods, which can significantly impact financial statements.

 

Why Accurate Amazon Accounting Is Important?

1. Financial Health Monitoring:

Accurate Amazon accounting provides a clear picture of your financial status. This includes understanding your revenue streams, costs, profitability, and cash flow. For Amazon sellers, this means being able to track each product’s performance and adjusting strategies accordingly.

2. Compliance and Tax Preparation:

Ecommerce business owners, including Amazon sellers, must comply with tax regulations. Accurate Amazon seller accounting ensures that all transactions are properly recorded and reported, which is essential for filing accurate tax returns and avoiding penalties.

3. Mastering Inventory Flux:

Amazon sellers need to navigate the delicate balance of inventory to prevent the pitfalls of stockouts and overstock, each of which can negatively impact their business. Precise Amazon accounting is pivotal in monitoring inventory flows, tracking the costs related to procurement and warehousing, and calculating the cost of goods sold (COGS).

4. Performance Metrics and KPIs:

Accurate Amazon accounting allows businesses to measure key performance indicators (KPIs) such as return on investment (ROI), customer acquisition cost (CAC), and lifetime value (LTV) of a customer. These metrics are vital for evaluating business performance and making adjustments to operational strategies.

 

 

How to Start Your Accounting as an Amazon Seller?

1. Set Up a Business Bank Account:

Open a business bank account separate from your personal accounts. This will help you manage your finances better and make tax preparation easier. Choose a bank that offers services beneficial for ecommerce businesses, such as online banking, low transaction fees, and good customer support.

2. Create an Amazon Seller Account:

Sign up for an Amazon Seller account by choosing between an individual or professional plan based on your sales volume. Fill out the required information and provide your business details to get started with selling on Amazon.

3. Purchase the Right Accounting Software:

Invest in reliable accounting software tailored for streamlining ecommerce accounting. Look for features like integration with Amazon, automation of sales and expense tracking, and comprehensive reporting capabilities. Software like QuickBooks Online, Xero, or Sage can be suitable options.

4. Find the Best Add-ons:

Enhance your accounting software with add-ons that provide additional functionality, such as inventory management, advanced analytics, or enhanced reporting. These tools can help streamline your operations and provide deeper insights into your business’s financial health.

5. Create Your Charts of Accounts:

Develop a chart of accounts that reflects the various aspects of your Amazon business accounting. Include accounts for different types of income, expenses, assets, and liabilities. A well-organised chart of accounts aids in accurate record-keeping and financial reporting.

 

 

6. Setup the Financial Metrics Reporting Structure:

Establish a structure for reporting key financial metrics such as gross profit, net profit, return on investment, and customer acquisition cost. Regular monitoring of these metrics will help you make informed decisions to streamline your Amazon accounting.

7. Setup Inventory Management Structure:

Implement an inventory management system that syncs with your accounting software. This system should help you track stock levels, manage reorders, and analyse inventory costs.

8. Start Recording Entries:

Begin making regular accounting entries for every financial transaction, including sales, returns, expenses, and payouts. Accurate and timely entries are vital for reliable financial reports.

9. Monthly Review Structure:

Set up a monthly review process to go over your financial reports, check the progress against your business goals, and adjust your strategy as necessary. This review should include an analysis of your profit and loss statement, balance sheet, and cash flow statement.

10. Figure Out Your Storage:

Consider your storage needs for inventory. Amazon offers Fulfillment by Amazon (FBA), which takes care of storage, picking, packing, and shipping but at a cost. Alternatively, you might opt for self-storage solutions if that suits your business model better.

 

 

Costs Involved in Amazon Accounting

1. Subscription Fees:

There are two types of Amazon seller accounts: Individual and Professional. In the individual plan, you will pay £0.75 per completion and a referral fee of 8% to 15% for each item sold, depending on the product category. With the professional plan, there is a flat fee of £25 for each item sold, excluding monthly VAT (Value Added Tax).

2. Referral Fees:

Amazon charges a referral fee for each item sold, which is a percentage of the total price paid by the buyer, including the item price, shipping, and any gift-wrapping charges. This fee varies significantly depending on the product category, typically ranging from 6% to 45%, with many categories averaging around 15%.

3. Fulfillment Fees:

Amazon sellers can choose between Fulfillment by Merchant (FBM) and Fulfillment by Amazon (FBA).

• FBM: FBM, or Fulfillment by Merchant, involves sellers shipping products directly to customers. FBM incurs a lower fee compared to Amazon FBA sellers. With FBM, Amazon expects sellers to cover shipping costs. Under the individual selling plan, sellers must adhere to Amazon’s set selling rates, although a shipping credit helps offset costs. With the FBM professional plan, sellers gain flexibility in setting shipping rates. Additionally, Amazon provides a shipping credit matching seller’s rates based on chosen shipping methods.
• FBA: Opt for FBA if you prefer not to handle the order fulfillment. With FBA, once an item sells, Amazon takes care of shipping it to customers from their fulfilment centres. They handle packing, distribution, and customer service on your behalf. Using FBA incurs no extra setup or subscription fees, but you will be responsible for storage and fulfilment fees, which vary based on factors like product weight, type, dimensions, and chosen shipping method.

4. Closing Fees:

A fixed closing fee of £0.50 per media item (books, DVDs, etc.) sold is charged, which applies to both individual and professional Amazon sellers.

5. Inventory and Long-Term Storage Fees:

Managing inventory efficiently is crucial, as Amazon imposes fees for both overstocking and understocking. New fees introduced in 2024 include low inventory fees and increased charges for aged inventory, pushing Amazon sellers to optimise their inventory levels

6. Additional Costs:

These costs include high volume listing fees, administration fees and return processing fees if customers send items back.

 

 

Financial Metrics to Monitor as An Amazon Seller

1. Revenue Growth Rate:

This metric measures the rate at which your sales revenue is increasing or decreasing over a specific period. It helps you understand your ecommerce business’s overall growth trajectory.

2. Inventory Turnover Ratio:

This ratio indicates how many times your inventory is sold and replaced over a period. A higher turnover rate suggests efficient inventory management and sales processes. However, a lower turnover ratio typically suggests slower inventory movement and longer holding periods before items are sold and replenished.

3. Customer Acquisition Cost (CAC):

CAC is the total cost of acquiring a new customer, including advertising, marketing, and promotional expenses. Understanding the cost-effectiveness of your marketing strategies is essential.

4. Purchase Order Value (POV):

POV tracks the average value of each purchase order over a period. This metric can help you understand buying behaviours and adjust pricing or promotions accordingly.

5. Return on Investment (ROI):

ROI measures the gain or loss generated on an investment relative to its cost. For Amazon sellers, this could be calculated for specific marketing campaigns, inventory purchases, or overall business investments.

6. Gross Profit Margin for Product Sold:

This margin reflects the difference between sales revenue and the Cost of Goods Sold (COGS), expressed as a percentage of revenue. It indicates how much each pound of sales contributes to the profit.

7. COGS for Product Sold:

This includes all the direct costs attributable to the production of the goods sold by your ecommerce business. Tracking COGS helps in understanding the direct costs involved in selling products on Amazon.

8. Average Order Value (AOV):

AOV represents the average amount spent per order during a specific period. It is useful for evaluating pricing strategies and marketing effectiveness.

9. Average Inventory:

Measuring average inventory over a period can help balance stock levels, reduce holding costs, and ensure product availability.

10. Net Profit Margin:

This metric shows the actual profitability of your Amazon business after all expenses. Monitoring this metric closely enables you to make informed decisions to optimise profitability and sustain long-term growth.

Quick Read: Interested in learning more about the essential KPIs for ecommerce success? Explore our blog, “An Ultimate Guide to the Most Important KPIs for E-commerce Business’s Success,” where we discuss the top KPIs that every online business should monitor.

Accounting Mistakes that Amazon Sellers Should Avoid

1. DIY Accounting Rather Than Using Cloud-Based Software:

Many Amazon sellers start with DIY accounting to save costs, but this can lead to errors and inefficiencies. The right way is to use cloud-based accounting software that enables real-time access to financial data, improves accuracy, and facilitates easier collaboration with financial advisors.

2. No Separation of Business and Personal Accounts:

Mixing personal and business finances can lead to tax complications and skewed financial records. Always maintain separate bank accounts and credit cards for business transactions to ensure clear financial tracking and reporting.

3. Chart of Accounts Not Properly Created:

A well-structured chart of accounts is crucial for insightful financial reporting. An improperly organised chart can obscure financial analysis, making it difficult to understand your ecommerce business performance. Ensure your chart of accounts is tailored to your business needs for clearer financial insights.

4. Not Accounting for Amazon Fees:

Selling on platforms like Amazon involves various fees—listing fees, fulfilment charges, referral fees, etc. Neglecting these in your accounts can lead to significant discrepancies in profit calculations. Regularly update your accounting records to reflect these fees accurately.

5. Not Tracking Damages and Product Returns:

Damages and returns are commonplace in ecommerce but often overlooked in Amazon accounting. Tracking these allows for more accurate revenue forecasts and inventory management. Implement systems to monitor and record all returns and damaged goods.

6. COGS Not Correctly Calculated:

Incorrect calculation of the Cost of Goods Sold (COGS) can distort gross margins and tax obligations. Ensure that your COGS calculations accurately account for all direct costs associated with the production and sale of goods.

7. Not Reviewing Reports Regularly:

Regular financial reviews are essential to catch and correct errors, adjust strategies and make informed business decisions. Set a schedule for regular financial report analysis to stay on top of your business’s health.

8. Inaccurate Timing:

Inaccuracies in timing—recording transactions in the wrong periods—can distort financial outcomes and trends. Ensure all transactions are recorded in their appropriate financial period.

 

 

 

Quick Tips to Excel in Your Amazon Accounting

1. Understand Amazon’s Fee Structure:

Familiarise yourself with Amazon’s various fees, such as referral fees, FBA fees, and monthly subscription fees. This understanding will help you accurately categorise expenses and avoid discrepancies in financial reporting.

2. Implement Robust Accounting Software:

Selecting and using good accounting software for Amazon sellers is crucial. Tools like Sage, QuickBooks, Xero, or any other specialised Amazon accounting software can automate data entry and financial tracking, saving time and reducing errors.

3. Regularly Reconcile Amazon Transactions:

Reconcile your Amazon sales and inventory transactions regularly to ensure that the recorded data matches Amazon’s records. This practice helps in catching accounting errors and maintaining accurate books.

4. Monitor Inventory Accurately:

Proper inventory management is crucial for Amazon seller accounting. Use accounting tools that offer real-time inventory tracking and forecasting to avoid stock-outs or overstock situations, which can tie up your capital unnecessarily.

5. Outsource to a Professional:

If managing Amazon accounting becomes too complex or time-consuming, consider outsourcing to a professional. An experienced accounting and bookkeeping services provider with a team of proficient ecommerce accountants can handle your financial management needs, allowing you to focus on growing your business and improving your operational strategies.

 

 

How to Choose the Best Accounting and Bookkeeping Services for Your Amazon Accounting?

1. Identify Your Business Needs:

Begin by clearly defining what you need from an accounting services provider. For an Amazon seller, this could include managing complex inventory, handling multiple currency transactions, tax calculations, and revenue tracking. Understanding your specific requirements will help you determine the scope of services you need, such as daily bookkeeping, monthly financial reporting, tax filing, or even CFO services.

2. Research Potential Service Providers:

Start with a broad search for accounting services providers who specialise in ecommerce and specifically have experience with Amazon seller accounting. Utilise online reviews, ask for referrals from other Amazon sellers, and check industry forums and groups. The aim is to compile a list of potential service providers that have a proven track record in handling ecommerce accounting complexities.

3. Evaluate Expertise and Experience in Ecommerce Accounting:

It is crucial to verify that the service provider has extensive expertise in ecommerce accounting, especially with Amazon’s platform. They should be familiar with Amazon’s API and accounting specifics like FBA inventory management, Amazon sales reports, and integration with ecommerce accounting software. Ask potential accounting services providers about their previous clients in the ecommerce sector and, specifically, those who operate on Amazon.

4. Consider Security and Compliance:

Ensure that the accounting firm follows stringent security protocols to protect your financial data. Depending on your location, they should comply with relevant regulations and standards. Additionally, consider their data backup and disaster recovery measures to safeguard your confidential information.

5. Evaluate Communication and Support:

Effective communication is key to any successful partnership. Assess how the accounting services provider plans to communicate with you regarding your financial status and any issues that arise. Verify that they offer sufficient support through dedicated account managers and responsive customer service.

6. Cost Considerations:

Lastly, consider assessing the expenses associated with the e-commerce accounting services. Seek comprehensive quotes from each service provider, outlining the scope of their offerings and any supplementary charges for tailored reports or end-of-year filings. You can align with service providers within your budget by conducting searches using specific keywords such as ‘Amazon accounting services in Birmingham,’ ‘Amazon bookkeeping services in Manchester,’ or ‘Amazon accounting and bookkeeping services in London.’ This targeted approach can help you identify suitable partners who meet your financial requirements.

 

 

Are you Ready to Sell on Amazon?

In conclusion, navigating the complex landscape of Amazon accounting and bookkeeping is pivotal for any seller dedicated to success on the platform. The array of fees—from inventory and fulfilment to advertising and referral costs—can be daunting, and understanding their impact on profitability is critical.

To effectively manage these challenges and capitalise on the opportunities they present, the expertise of specialised accounting services providers is indispensable. These experts are not just number crunchers; they are strategic partners who provide tailored advice, ensure regulatory compliance, and help optimise business operations. Remember, effective Amazon accounting and bookkeeping is not just about keeping your financial ship afloat; it is about charting a course towards sustained growth and profitability. Let the principles and tips discussed here be your north star, guiding you to financial success in the dynamic world of Amazon selling.