Many Amazon sellers start accounts with a lot of inventory but limited back end support. Accounting and bookkeeping are one of the areas most Amazon sellers have trouble with. Come tax season, this can cause a serious headache.
Poor accounting can also affect your decision making and give you an incorrect idea about how your business is actually performing. If you’re just starting your sales on Amazon here are three common accounting issues you may face and a possible solution to them.
Problem 1- Accurate Assessment of Sales Data
When you make a sale on Amazon, you do not receive payment immediately. Amazon typically makes these deposits once in a fortnight. Most small business owners record this amount as income from sales.
In fact, when you make a sale through Amazon, there are a number of fees deducted before the amount transferred to your account. This includes shipping and warehouse fees, FBA fees, chargebacks, sales tax, etc. These deductions depend on what Amazon services you are using. Thus, the amount credited to your account reflects a lot more than just the sales made.
There are two ways you can deal with this issue. If you have time to spare, you can manually check the back end of your Amazon account. You will find a lot of data here that will need to be pulled into a spreadsheet and sifted through. This will show you what deductions have been made, where and why. This data will also help clear your accounting.
Alternatively, you can automate this process with a good Amazon seller bookkeeping software. This software will automatically collect the relevant data from your account backend and keep your books updated.
Problem 2 - Inaccurate Inventory Recording
A mismatch between inventory and the Cost of Goods sold is one of the most common mistakes made by Amazon resellers. What often happens is that when an Amazon seller gets new inventory, the cost of purchasing is entered as Cost of Goods sold. While this does reflect how cash is moving through your business, it is not an accurate reflection of your performance.
You will also not get a clear idea of profits being made by following this method. As your business grows, it will result in an inaccurate valuation of your assets and create problems if you were to approach a bank for a loan or consider selling your business.
To get a correct picture of your profits and performance, the cost of Goods sold should be recorded against the sales of the said goods. This means that it must be entered only when an item is sold. An inventory balance must be maintained separately. At the end of each month, the inventory sold must be subtracted from this inventory and the cost of goods sold entered against the sales made. This will give you a clear idea of your profits and losses as well as the state of your inventory.
Doing this manually can be time-consuming and complicated. The task can be easily managed with accounting software. All you will need to do is enter the cost of each item to be sold on your Amazon seller account. Everything else will be automated.
Problem 3 - Compliance With Sales Tax
Each state has different tax regulations for e-commerce ventures. Tracking these laws and complying with them can be difficult for small business owners. Unfortunately, if left unattended to for too long, it can leave you with severe penalties and sales tax liabilities. This alone can destroy businesses.
As a small business owner, you must familiarize yourself with the sales tax laws of your state. However, this may not be enough. You may also have to hire the services of a lawyer or accountant who has a better understanding of these laws.
You can also use tax analytical tools available online. This will take into account various factors such as the state your business is registered in, the sales amount for each year, etc. and give you an idea of your sales tax exposure. Ideally, you should look into your sales tax liability at least once a quarter.
Implementing these solutions is not rocket science. It may take a little time and effort but in the long run, you will benefit from it. After all, the whole idea behind setting up an Amazon seller account is to grow your business and make a profit. Let’s spend some time and effort and do it right today.