New Amazon Sellers: Key Accounting Practices for Success

Starting your new Amazon business is exciting, and we’re sure you’re thrilled! But if you’re feeling a bit lost about where to begin with accounting, don’t worry – that’s why we’re here. Today, we’ll break down the basics of accounting for new Amazon sellers like you. So, let’s start and get you on the right track!

Set Up a Separate Business Bank Account

Setting up a separate business bank account is the first step. It helps you keep your business income and expenses separate from your personal funds.

This makes it easier to track your sales, fees, and expenses from Amazon, which simplifies accounting. A dedicated account also makes filing taxes less stressful. You can clearly see what income you earned from your business and what expenses you can deduct.

Having a separate account also makes your business look more professional. It shows that you take your Amazon store seriously.

It can also protect your personal finances. If there are issues with returns, refunds, or disputes, they will not affect your personal account directly.

Opening a business bank account is straightforward. Many banks offer accounts designed specifically for small businesses like yours. Compare different options to find one that meets your needs.

Understand Amazon’s Fees and Deductible Expenses

When you sell on Amazon, you pay different fees. These include referral fees, which are a percentage of each sale, and fulfillment fees if you use Amazon’s Fulfilled by Amazon (FBA) service.

There are also fees for listing products, storage, and shipping costs. It is important to know what each fee is and how much you are being charged.

Knowing which expenses you can deduct can save you money. Deductible expenses include costs directly related to your Amazon business. For example, you can deduct the cost of products you sell, shipping supplies, and fees paid to Amazon.

If you use software for tracking sales or managing inventory, that is also deductible. Even home office expenses might be deducted if you work from home.

Keep a detailed record of these expenses, as it will help you at tax time and make it easier to see how profitable your business is.

Implement Inventory Management and Cost Tracking

Good inventory management prevents you from running out of stock or holding too much inventory that doesn’t sell. This way, you know when it’s time to reorder and how much each item costs you to sell.

Cost tracking means understanding all expenses involved in buying, storing, and shipping your products. You need to know the cost of each item, shipping fees, and any storage fees if you use Amazon’s FBA service. Keeping track of these costs helps you price your products correctly and ensure you make a profit.

Using software can make this process easier. You can choose between many great Amazon seller tools that connect directly with Amazon, automatically updating your inventory levels and tracking costs. This saves you time and reduces the chance of errors.

Reconcile Amazon Sales With Bank Statements Regularly

This process helps you confirm that the money you earned from sales is deposited into your account correctly. It also enables you to spot any mistakes or missing payments.

To do this, download your Amazon sales reports regularly. Then, compare them with the deposits and withdrawals in your bank account. Look for any differences, like missing payments or fees that you didn’t expect. Fixing these issues quickly helps you avoid bigger problems later.

Reconciling sales also makes tax time easier. It ensures that your records are accurate so you can report your income correctly.

Understand and Collect Sales Tax Properly

Sales tax laws vary by state and country, so it’s important to know where you need to collect it.

Some states require you to collect sales tax if you have a physical presence, like a warehouse or office, while others expect it based on where your customers live. Failing to collect sales tax can result in penalties or fines.

Amazon may automatically collect sales tax for some states, but it’s your responsibility to check where you need to collect it. Make sure you understand the tax laws for every state or region where you sell products. You also need to register with the local tax authority and file sales tax returns regularly.

If you’re unsure where to start, it’s best to consult an accountant for Amazon sellers, as they can help you with the complexities of sales tax and ensure you comply with the law. They can also help you avoid costly mistakes and make sure you’re collecting the right amount of tax from each sale.

Monitor Cash Flow to Avoid Shortfalls

Cash flow is the movement of money in and out of your business. It includes sales income, expenses, and payments for things like inventory and shipping.

Positive cash flow means you have more money coming in than going out, while negative cash flow means the opposite. To keep your business healthy, you need to keep a close eye on this balance.

Review your cash flow regularly to spot any issues before they become big problems. Look at how much you spend on new stock and how long it takes for those items to sell. If you spend too much on inventory, you might run out of cash before you make enough sales.

And there you have it! Follow our advice, and you’ll be well on your way to managing your Amazon accounting effectively. However, if you’re ever uncertain about anything, don’t hesitate to ask a professional accountant for help. With the right guidance, you can avoid costly mistakes and keep your finances on track. May your business continue to thrive and grow!