Accounting for the typical mom-and-pop shop is boring, but this isn’t always the case with Amazon or Shopify accounting, which excites us accountants. Without the proper oversight in your Amazon accounting function, you could be left with stagnant sales, inaccurate tax filings, and low profitability.
In this article, we’ll talk about the current challenges Amazon business owners face, the benefits of running a successful accounting function, and three ways you can master your Amazon accounting.
The Current Challenges in Amazon Accounting
If you’re like most Amazon business owners, even the experienced ones, you’ve found yourself getting lost in your accounting system. Maybe you’re struggling to time your Amazon transactions and implement the proper cut-off or are frustrated when your Amazon reports don’t match your accounting system.
Other common challenges that business owners have include product returns throwing off inventory counts and revenue, cost of goods sold being misstated, and no insights into your sales tax function. Each of these concerns presents a risk to your business.
What happens if your inventory is overstated and you run out of products to sell? How about reporting inaccurate expenses to the IRS? Amazon accounting quickly becomes complex without the proper procedures in place, and it’s not just your business that is facing these issues. Most Amazon sellers struggle to maintain an efficient system.
The Benefits of a Successful Amazon Accounting Function
There are more benefits to maintaining a successful Amazon accounting function outside of risk reduction. Let’s go over a few of these benefits.
Lower Taxes
No one likes to overpay to Uncle Sam. When you have transparency in your accounting system, you can rest assured that you are maximizing your tax deductions and paying the lowest amount of taxes possible.
Increased Profitability
Higher profit margins means more money back in your pocket. By tracking the real profit of your business, not just what the bank shows, you can actually celebrate all of your hard work.
Transparency Into Your Business’s Financial Health
When you have insights into your sales trends, business performance, and cash flow, you can make more informed decisions about where your business is headed.
Effective Cash Flow Management
Money flows in and out of your business on a daily basis. With an efficient accounting function, you can promote more money flowing in, aka more hard-earned cash in your pockets.
3 Ways to Master Your Amazon Accounting
Amazon sellers are bound to encounter challenges in their accounting functions. Let’s go over three ways you can master your Amazon accounting.
#1: Prioritize Sales Data
Your sales information is one of the most important functions in your business. After all, your sales data tells you what products are selling, if customer demand is shifting, and how you can plan for upcoming periods.
Unfortunately, the sales data that comes over from Amazon doesn’t always reflect the actual situation of your business, especially when net deposits flow into your accounting system. Amazon takes out sales tax, shipping costs, and other fees from your gross revenue. This results in net revenue showing up on your bank statement.
Without the proper Amazon accounting truing-up your revenue, you have no accurate data to base your decisions on. On a regular basis, make it a priority to adjust your sales data. This could be with your monthly reconciliations or on a weekly basis, depending on your transaction levels.
#2: Consistently Review Inventory and COGs
Just like sales data can be an Amazon accounting pain point, so is cost of goods sold and inventory. When you place a large product order, you can’t immediately expense the deduction. Instead, the purchase goes to your balance sheet as inventory.
Once the piece of inventory is sold, then the expense moves to cost of goods sold. This has to do with the matching principle, requiring revenue and corresponding expenses to be reported in the same period.
Without consistently reviewing inventory and cost of goods sold balances, you could be misstating net income and inventory levels. Like your sales data, you should be reviewing inventory and COGs on a regular basis, such as weekly or monthly.
#3: Work with an Amazon Accountant
Another way you can master your accounting is working with an Amazon accountant. An Amazon accountant will have the industry experience needed to make sure your accounting system is efficient and accurate.
For example, your Amazon accountant can review your inventory and sales data to ensure accuracy. When you know your accounting system contains accurate data, you can make more informed decisions surrounding scalability and profitability.
Getting Started
Are you ready to master your Amazon accounting? If so, reach out to one of our Amazon accountants to schedule your free consultation. Don’t let the complexities of your accounting system prevent you from scaling. Contact a team member today.
