Amazon Bookkeeping Essentials: Here’s What You Need to Know 

There are a lot of activities to consider when growing your FBA business, but none is more important than bookkeeping. By implementing effective Amazon bookkeeping practices, it becomes significantly easier to avoid mistakes, accelerate growth, and maximize your business’s value.

In this article, we cover everything you need to know about Amazon bookkeeping, including:

• Why bookkeeping is important for Amazon businesses
• What makes Amazon bookkeeping unique
• How bookkeeping can help you avoid costly mistakes
• How to implement effective bookkeeping practices in your FBA business today 

The Importance of Bookkeeping for Amazon Businesses

Unlike a flashy logo or perfectly polished product pages, bookkeeping isn’t something that the rest of the world sees. However, although it takes place ‘behind the scenes,’ it’s still a critically important part of your business’s success.

There are several key reasons why bookkeeping is important in your FBA business.

Eliminate Wasteful Spending

Without sound bookkeeping practices, it’s hard to grasp the full picture of your business expenses. You may have a rough idea of the various expense categories in your business, but it will be difficult to know what percentage of total revenue each expense represents. 

By implementing effective bookkeeping practices, you can easily create dashboards that allow you to track your spending. This enables you to quickly identify when a given expense seems excessively high. For example, if your inventory shipping or advertising costs have been steadily increasing over the past three months, this data will show up in your bookkeeping reports. Once you identify the trend, you can take proactive steps to address such issues and bring costs back under control.

Similarly, bookkeeping can help you accurately measure your ROI across various marketing channels. This allows you to quickly cut underperforming marketing activities so you can focus your investments in high-leverage areas.

Identify Opportunities in Your Business

Just as bookkeeping can help you identify increasing costs, it can also help you identify opportunities. 

For example, let’s say your average product’s profit margin is 25%, but two of your products have an impressive 40% margin. Armed with this information, can you seek ways to emulate their success? Are their advertising costs significantly less? Are the raw material costs less? When you can understand the core drivers of profitability, you can use that knowledge to your advantage.

Similarly, your financials can reveal trends for you to capitalize on. For example, if you’re selling in five different categories and one of them is rapidly growing, you can choose to focus more of your energy on that area. 

Create Accurate Forecasts

Effective bookkeeping practices allow you to create accurate financial forecasts, enabling you to make data-driven decisions regarding capital allocation. 

For example, forecasts help you to understand how much money you should set aside for key business expenses such as advertising and contractor costs. By doing so, you can be sure that you’re allocating the right funds in the right places. Of course, one of the key areas where this makes a significant difference is inventory management.

Improve Inventory Management

Every FBA seller knows how important it is to manage cash flow effectively and predict future demand. Unfortunately, many sellers learn this lesson the hard way by running out of inventory. By implementing effective bookkeeping practices, you can look at the data to make inventory purchases based on your business’s current sales trends instead of relying on “your gut feel.”

For many Amazon businesses, inventory management is one of the most important areas to focus on. Quite literally, it can ‘make or break’ your FBA brand. If you’re constantly stocking out during peak sales periods, it will be extremely difficult to maintain momentum and grow your business. With the right bookkeeping practices, you can eliminate the guesswork and make smarter, data-informed inventory management decisions.

Accelerate Growth

All of the points mentioned above culminate to provide an additional benefit: Faster growth. 

For Amazon business owners, bookkeeping is an essential element of growth. When you’re able to gain full visibility into what’s happening within your FBA brand, you’re able to lead with clarity and focus. 

Often, this makes the difference between hitting a plateau and continuing to scale with confidence. If you decide to use a business credit card to accelerate growth, bookkeeping has the added benefit of helping ensure you can make your required credit card payments.   

“For Amazon business owners, bookkeeping is an essential element of growth.”

Paying Taxes

Even if you’re dead set on avoiding bookkeeping, at some point it will be forced upon you. In most cases, simple bookkeeping is required in order to prepare and file taxes. Not to mention, if you want to identify tax deductions, you’ll need Amazon accounting practices in place. 

In addition, FBA businesses are required to collect and submit Amazon sales tax. The easiest way to fulfill those requirements is through Amazon accounting practices. 

Increase the Value of Your Amazon Business

If you ever consider selling your Amazon business, bookkeeping is absolutely essential. 

In the acquisition marketplace, buyers pay close attention to your business’s growth trends. Since bookkeeping allows you to increase your growth trends, it can directly affect your business’s value when it comes time to sell.

“Bookkeeping plays a critical role in telling your business’s story to potential buyers.”

Additionally, no buyer wants to acquire a business that has sloppy financials. After all, if a buyer isn’t able to see what’s happening in your business on a monthly basis, how can they possibly understand the opportunities it faces?

In order to provide buyers with full visibility of your business, it’s important to provide detailed financial statements on a monthly, accrual basis. Therefore, bookkeeping plays a critical role in telling your business’s story to potential buyers.

What Makes Bookkeeping for Amazon Businesses Unique?

There are a few key elements that make Amazon bookkeeping slightly different than bookkeeping for other small businesses. Below are four ways in which Amazon businesses are relatively unique.

Accrual Accounting

Many small business owners tend to gravitate towards using cash accounting. One reason for this is that it’s often simpler, especially for owners who don’t have an accounting background. For some businesses, such as service businesses that don’t deal with accounts receivable or accounts payable, cash accounting can suffice. However, the same isn’t true for Amazon business owners.

To see why this is the case, it’s important to understand the key differences between cash and accrual accounting. In cash accounting, revenue and expenses are recorded when cash changes hands. With accrual accounting, revenue and expenses are recorded when they’re incurred, not when the cash changes hands.

“Because accrual accounting reveals more detail in your business, it allows you to identify trends that would otherwise be overlooked.”

Let’s look at two examples of how these two accounting methods would affect your bookkeeping practices.

Let’s say you place a $200,000 inventory purchase at the beginning of May, and that inventory is sold evenly over the course of four consecutive months (May to August), producing $150,000 in revenue during each of those months. With cash accounting, your financial records would show a $200,000 expense for cost of goods sold in May and $150,000 in revenue for that month, leading to a loss of $50,000 for May. For the following three months, you would have zero inventory expenses (because you recorded all of it in May), leading to $200,000 in gross profit for each of those months. 

Based on this example, it’s not hard to see that cash accounting leads to the appearance of “lumpy earnings.” 

Accrual accounting avoids the appearance of lumpy earnings by recording revenue and expenses during the periods in which they have occurred. Returning to the example above, accrual accounting would show a $50,000 inventory expense in each of the four months since sales occurred evenly over the course of those months. In turn, your business would have $150,000 in profit for all four months. Of course, this is a highly simplified example, and no FBA business has completely consistent sales, but it highlights the key point.

Additionally, because accrual accounting reveals more detail in your business, it allows you to identify trends that would otherwise be overlooked. 

Tracking Multiple Channels

If your Amazon business sells through multiple channels, it’s important to keep track of revenue and expenses for each of your platforms. For example, if you have a presence in the Amazon marketplace, Walmart, and Shopify, you’ll want to ensure that you’re recording sales and fees separately for each of those channels. Additionally, if you’re selling in international markets, you’ll want to keep separate records for each of those channels as well.

By separating each sales channel in your bookkeeping practices, it’s easier to understand where you’re having the greatest success. Once that’s identified, you can address challenges in weaker channels or focus your energy on the places that are delivering the highest ROI.

Managing Inventory

Every Amazon FBA seller knows that managing inventory is an essential component of running a successful Amazon FBA business. Therefore, it only makes sense to implement a bookkeeping practice that allows you to manage inventory as effectively as possible. 

Earlier, we explained why accrual accounting leads to a more accurate picture of your inventory expenses, as well as revenue and profit trends. As an FBA business owner, you always need to be paying close attention to your cash flow to ensure that you’re able to reinvest in inventory and scale your business.

International Sales and Tax Considerations

Amazon businesses that sell in international markets must pay close attention to all relevant tax compliance laws. Because laws and regulations change regularly, it’s a smart idea to work with qualified tax professionals who are familiar with each territory in which you operate. By doing so, you can avoid unpleasant surprises when it’s time to file taxes. 

Callum Armstrong from A2X Accounting summarises some of the key challenges that Amazon bookkeeping presents: 

“​​Amazon bookkeeping is complex because of the large volume of data required to properly account for each sale. Just one purchase results in selling fees, FBA fees, sales taxes and other transactions that must be accurately reflected in the financials.”

How to Avoid Common Mistakes in Amazon Bookkeeping

The biggest mistake that Amazon sellers make regarding bookkeeping is not doing it. Without implementing bookkeeping practices, it’s very difficult to make informed decisions that lead to growth.

During the early stages of building an FBA business, many sellers are hyper-focused on driving sales. This leads them to focus almost entirely on launching products, running ads, and other marketing efforts. Unfortunately, bookkeeping is one activity that gets pushed aside. Sometimes, owners don’t realize the cost of their neglect until they encounter serious cash flow issues. 

“The biggest mistake that Amazon sellers make regarding bookkeeping is not doing it.”

A lack of bookkeeping practices is directly related to several other mistakes, including mismanaged ad budgets, inaccurate forecasts, and uninformed inventory purchases. All of these can contribute to reduced profitability and growth.

Hire a Professional Amazon Bookkeeper

To avoid these mistakes, it’s usually best to hire a bookkeeping professional. Ideally, they should be intimately familiar with Amazon businesses. CapForge offers a variety of accounting services and solutions to help Amazon and Ecommerce businesses with bookkeeping, taxes, and payroll.

By working with a professional Ecommerce bookkeeper, it becomes significantly easier to improve your business’s operations, including when it comes to supply chain optimization. Not to mention, when you hand off bookkeeping to someone else, you can stay focused on coming up with more great Amazon business ideas. 

“By working with a professional Ecommerce bookkeeper, it becomes significantly easier to improve your business’s operations”

Top Tools and Practices to Help You With Amazon Bookkeeping

Unless you’re an experienced Amazon accountant, the best practice for Amazon bookkeeping is to hire an industry professional.

When it comes to top tools, there is a variety of Amazon accounting software (including cloud accounting software) out there. As an Amazon seller, these can help you streamline the process. Xero, Quickbooks, and A2X Accounting are a few popular options. Many of them allow you to easily sync data across platforms and marketplaces. 

Even if you don’t excel at accounting, the right SOP and accounting software can provide you with invaluable information in real-time at your fingertips. Instead of digging through banking statements or Amazon Seller Central reports to figure out your ad spend or seller fees for the previous month, you can simply log into a customized dashboard to track your progress.

While some activities are inherently complicated, bookkeeping doesn’t need to be one of them. By hiring an expert and implementing the right practices, you’ll be well-positioned to quickly scale your Amazon business with confidence and clarity.