The popularity of e-commerce has led to large retailers, like Walmart, giving third-party sellers the ability to sell on their platforms. Walmart launched Walmart Marketplace back in 2009 but didn’t see high numbers of third-party sellers until a few years ago.
In May 2022, Walmart reported over 150,000 third-party sellers, a 66% increase from 2021. Although Walmart does provide its sellers with tools to track financial performance and growth, a majority of the Walmart accounting burden falls on you as an e-commerce business owner.
Sales tax, revenue recognition, inventory accounting, and tax planning are four important components of proper Walmart accounting for your e-commerce business.
Whether you are an established third-party seller on Walmart or are considering diversifying your e-commerce business and selling on the platform, understanding the basics of Walmart accounting can seem overwhelming.
This makes it important to contact a qualified accountant about any questions to ensure you are positioning your e-commerce business for success.
Sales Tax
The first area that Walmart accounting focuses on is sales tax. Due to the size of Walmart, they are considered a marketplace facilitator. This means that they collect sales tax from customers on your behalf. However, unlike Amazon and eBay, Walmart only collects the sales tax. The burden falls on you to remit the tax to the proper states.
This can create a complex situation in your Walmart accounting, especially since you need to determine the specific counties that purchases were made. Additionally, most states have nexus thresholds, meaning if your sales are under a certain amount, you do not need to remit sales tax.
All of these factors contribute to the complexity of filing and paying sales tax. This is why many Walmart sellers reach out to an accountant for help. Since each state imposes different requirements on taxable products and nexus, it’s important that you find an accountant that specializes in accounting for e-commerce businesses.
Revenue Recognition
The next component of Walmart accounting is revenue recognition. Walmart deducts a referral fee based on each completed purchase, which can range from 6% to 15%. These fees are deducted from your gross revenue, creating a discrepancy between your gross sales and the amount that clears the bank.
According to GAAP, revenue must be reported at the gross amount, not with fees taken off the top. This leads to the need for adjustments to your accounting system to true-up revenue to the gross amount.
In addition, the FASB recently passed ASC 606, which tightens the criteria for reporting recognized revenue. Revenue can only be recognized on the P&L when all of the contractual obligations are satisfied. If you offer warranties or services on your products, you will need to defer a portion of that revenue until it is earned.
Many Walmart sellers gravitate towards the cheapest accountant to help them adjust their books. The cheapest accountant often does not have the knowledge necessary to accurately adjust your records. To avoid reporting incorrect revenue on your financial statements and tax returns, look for an accountant with more experience specific to the e-commerce industry.
Inventory Accounting
Walmart does not store inventory for third-party sellers. When you place an inventory order, the amount does not go to the P&L. Instead, the amount will go to the balance sheet until the unit is sold. To report the correct cost of inventory, you will need to keep track of the landed cost, which is the price you paid for the inventory.
Walmart accounting looks to keep track of each individual unit cost. The price you pay for a product can change between inventory orders, making it important to assign each piece the correct cost to report accurate financials.
Tax Planning
Many Walmart sellers overlook tax planning despite the significant benefits it can have on your tax bill. Tax planning is the process of finding legal strategies to reduce your taxable income. The tax planning strategies you find most useful will vary depending on a variety of factors, such as how many partners are in the business, the types of purchases you are making, and where your employees work.
For example, some states allow Walmart sellers to take accelerated depreciation options on purchases placed in service during the year, while other states disallow this tax planning strategy. Working with an accountant that is familiar with different state regulations is important to uncover the right strategies for your Walmart business.
Summary
Walmart accounting involves sales tax, revenue recognition, inventory accounting, and tax planning. These four components are just the start of the procedures you need to watch out for as an e-commerce seller.
To work with an accountant that specializes in e-commerce accounting, reach out to the team at BUSINESS. We understand that there is no one-size-fits-all approach when it comes to the Walmart accounting for your business.
