When running an Amazon storefront, it’s important to set your business up on a strong foundation. Building a strong foundation helps you reach your growth goals, maintain compliance with regulatory agencies, and maximize your financial health.
Accurate Amazon accounting is the foundation that allows your business to flourish. In this article, we’ll cover the five benefits of regular Amazon accounting, including a discussion on how to overcome common pain points.
The Difference Between Amazon Accounting and Amazon Bookkeeping
Amazon accounting and bookkeeping are two different ball games. Bookkeeping focuses on transaction management, while Amazon focuses on financial statement adjustments. Both bookkeeping and accounting are important for an Amazon business.
Bookkeeping often comes before accounting, with monthly reconciliations and preliminary report creation. Accountants are like your final check, ensuring accuracy in your financial statements and providing insights on upcoming tax burdens.
Common Pain Points of Amazon Accounting
Amazon accounting can be complex, especially when the amounts deposited into your bank account are on a net basis. It’s not uncommon for platform fees, sales tax, and returns to be subtracted from bank deposits. This paints an inaccurate picture of the financial health of your ecommerce business, which is why Amazon accounting is crucial.
In addition, countless ecommerce business owners get frustrated with the complex reports Amazon generates. This makes it even more difficult to reconcile your internal accounting records with platform reports.
Moreover, sales tax is a pain point for almost all ecommerce sellers. States require ecommerce sellers to register and pay sales tax when nexus requirements are met, even if you don’t have a physical presence in the state. Tracking sales to each state can be tedious and prone to error without the proper ecommerce accounting.
5 Benefits of Regular Amazon Accounting
The above pain points can all be solved with proper Amazon accounting. If you don’t have the time to regularly adjust your accounting records, you should consider an outsourced accountant. Outsourced accountants are a cost-effective option that gives your business access to the benefits of regular accounting. Nevertheless, here are five other benefits of regular Amazon accounting:
Lower Taxes
No one likes to pay taxes, especially as the average ecommerce seller can be taxed nearly 40% on profits. Proper accounting ensures all of your transactions are recorded, helping you pay taxes on the lowest income possible. This means putting more of your hard-earned money back into your pocket.
High Profitability
One of the main financial statement adjustments accountants will make is related to inventory and cost of goods sold. Raw materials and finished goods aren’t allowed to be immediately expensed. Instead, the cost goes onto your balance sheet until the item is sold.
With regular adjustments of inventory and cost of goods sold, you can optimize your profitability by making more informed decisions surrounding unit costs and reorder quantities. Additionally, you can clearly see which products are performing the best and which items might be underperforming, allowing you to strategically adjust operations with profitability in mind.
Sales Tax Compliance
Amazon accounting also prioritizes sales tax compliance. Ecommerce accounting tracks sales to each state, helping you determine when you need to go through the registration process. Even though Amazon is considered a marketplace facilitator, you might have other platforms that place the burden on you, like Shopify.
More Informed Business Decisions
Business decisions happen quickly. If your Amazon accounting is six months behind, you might miss crucial growth opportunities and make poor decisions. When you can easily jump into your accounting software and evaluate your financial health, you have more insights and information to base your decisions on. This is especially important when it comes to managing your cash flow.
Accurate Financials
Accurate financial statements are one of the byproducts of regular Amazon accounting. Lenders, investors, and members of management rely on financial statements to make business decisions. Not to mention that your tax returns and sales tax reports are filed based on your financial statements. With inaccurate numbers, you increase your risk of non-compliance. Most entrepreneurs can agree that they don’t want to be on the bad side of Uncle Sam.
Getting Started
Does your business have regular Amazon accounting? If not, now is the time to prioritize your ecommerce accounting. Whether you are six months behind on your reconciliations or simply looking to pass the baton off to an expert, our team is here for you. Reach out today to schedule your free consultation and start enjoying the benefits accurate Amazon accounting has to offer.