Accounting for Amazon Sellers

• Reading Time: 6 Minutes
• Published: July 7, 2022
• Last Updated: January 22, 2025

The increasing demand and rise of e-commerce business platforms like Amazon have raised the significance of ecommerce accounting. The complicated nature of online transactions conducted by e-commerce businesses makes accounting a bit difficult and takes too much time. Many ecommerce accounting software have come into existence to ease the process and reduce the burden on the shoulders of business owners. If a business doesn’t want to hire an in-house team to manage the accounting software, it can outsource its accounting to a third party. However, before deciding on an accounting method, it is important to understand the accounting for Amazon sellers. Let us learn more about it in detail.

Why Do Amazon Sellers Need Bookkeeping and Accounting?

Like any other business, Amazon sellers need to know the business numbers. Improper bookkeeping and accounting can lead to inaccurate inventory valuation or product pricing, resulting in loss of sales and valuable customers. With the increased number of transactions, jotting down the information on pen and paper or recording it in spreadsheets won’t be helpful. It will only make the entire accounting process more complicated, inaccurate, and unreliable.

Businesses can use e-commerce accounting software or hire an outsourcing firm to overcome this issue. After all, accounting is one of the most important functions of any business and thus, must be managed carefully. The following are the reasons why bookkeeping and accounting are so important for Amazon sellers:

• To determine net profit-
Profit is the ultimate goal for all business transactions; thus, knowing the exact net profit, after all the necessary deductions, at any point is crucial. Accurate numbers are required to calculate the correct net profit. Proper accounting helps ascertain the right numbers for purchases, sales, and other expenses and revenue to determine profit.

• For tax filing-
Careful bookkeeping and accounting help prepare accurate financial statements and reports, which are then used for tax filing purposes. Timely and accurate tax filing is compulsory to avoid fines and penalties. However, accuracy in tax filing cannot be reached if the accounting is not right.

• To find tax deductions-
Tax deductions are the expenses made by a business over the year that is deducted from the gross tax amount due. Tax deductions reduce the amount of tax a business has to pay. There are many e-commerce business-specific tax deductions, but a business can use them only when its accounts are organized and accurate.

• To monitor the business’s financial health-
Accounting for e-commerce business keeps track of business cash flow, earnings, and expenses. Having a keen eye on the numbers help single out any mistakes in the financial books. Updated information about the financial numbers aids in monitoring the financial health of the business at any point.

• For easy borrowing-
If the business needs to borrow money, it must prove its credibility and financial strength to repay the loan. A business needs to show its financial health, presented by the accuracy of the financial statements and reports to prove itself to be a good risk.

Key Areas of Accounting for Amazon Sellers

Accounting for an e-commerce business is the key to Amazon sellers’ success, as inaccurate accounting leads to bad financial decision-making. Though every business function is important, some key accounting areas exist for Amazon sellers. A business must handle these key areas diligently, whether with the help of outsourcing firms or e-commerce accounting software. The key accounting areas include:

1. write
Inventory and Cost of Goods Sold (COGS) calculation is one of the most important and complicated activities for Amazon sellers. Inaccurate recording of the inventory purchase and sales cost can cause errors and thus affect the business’s profitability.

2. Sales tax compliance-
Sales tax compliance is one of the major aspects for Amazon sellers. Any violation or inaccuracies in sales tax attracts huge penalties and tax liabilities. Proper knowledge and understanding of the sales tax laws and regulations are necessary. It usually requires help from outsourcing firms or e-commerce accounting software.

3. Accurate sales data-
Amazon credits the accounts of Amazon sellers every two weeks. It includes sales amount, but all the amount is not sales credit, and recording it as sales will lead to poor sales data and wrong revenues. The amount credited includes sales, shopping fees, FBA fees, sales tax, warehouse fees, and returns. Therefore, it is necessary to separate the sales data from the overall credit amount for accurate sales revenue data.

Challenges of Amazon Accounting

Amazon sellers also face management and performance issues regarding business finances. The accounting function is pushed to the back seat when the business is busy promoting and marketing its products. It leads to accounting challenges that can adversely affect the business in the long run if not managed on time. The major challenges of Amazon sellers’ accounting include:

a. Complex inventory management and control-
The inventory covers the biggest part of the cost and ties-up capital of an e-commerce business. Determining the actual inventory at different stages like in-progress at manufacturing, customs or en-route, third-party logistics, and at the Amazon warehouse is very challenging. Other stages where inventory is stuck include shopping cart and customer returns. It is compulsory to consider all the inventory stages for accurate management and control.

b. Amazon fee structure-
Amazon’s fee includes warehousing costs, commissions, and advertising fees. These fees are charged at different stages of the business process and form a big part of the business profit.

c. Confusing sales tax liabilities-
E-commerce businesses like Amazon have multiple sales locations with multiple fulfillment centers. Transferring products to different locations includes collecting and paying sales tax at different locations. Keeping a proper track of what is collected and where the payment is made is complicated but crucial to calculate the exact sales tax amount for tax filing purposes.

d. Transaction grouping-
Businesses have big and small transactions. The big transactions are easy to track and record, but smaller transactions require generating more data points. Since smaller transactions result in better profits, their proper recording is important. If the transactions are not correctly grouped while recording, the entire process will slow down or completely crumble.

e. Difficulty in managing customer returns-
E-commerce platforms like Amazon face the most customer returns issues for various reasons. Accurate entry and costing of customer returns is a tedious task for a business. However, accurately recording every return is required for inventory management and sales data.

Though there are many factors to consider and challenges to overcome for a successful e-commerce business for an Amazon seller, it can be made easy. Amazon businesses can outsource their accounting function or use good e-commerce accounting software to manage their finances. A business can choose one of many free accounting software for Amazon sellers available in the market. However, the free software will not have some good and necessary features that paid software has.

Make sure to consider some important factors for a successful Amazon seller’s accounting. These factors include accounting method, cost of international sales, and sales tax compliance requirements. Also, it is important to choose the right accounting management method for Amazon sellers, be it outsourcing or using e-commerce accounting software with the help of an in-house team. Make the right and timely decision for a successful accounting and profitable business.

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