Best Bookkeeping Practices for Amazon Sellers: A Comprehensive Guide
For Amazon sellers, efficient bookkeeping is not merely a compliance requirement—it’s a critical business function that provides financial clarity, ensures tax compliance, and enables data-driven decision making. This guide explores essential bookkeeping best practices specifically tailored for Amazon sellers and how specialized accounting software can transform financial management.
The Importance of Accurate Bookkeeping for Amazon Sellers
- Financial Clarity: Proper bookkeeping provides a clear picture of your business’s financial performance, including sales, expenses, profits, and cash flow.
- Tax Compliance: Accurate records ensure compliance with complex tax regulations, timely filing, and proper tax calculations.
- Decision Support: Detailed financial data enables informed choices about inventory, pricing strategies, advertising budgets, and business operations.
- Business Growth: Effective bookkeeping practices establish the foundation for scalability and long-term financial stability.
Essential Bookkeeping Practices for Amazon Sellers
1. Establish Proper Business Entity Separation
Best Practice: Maintain complete separation between business and personal finances by establishing dedicated business bank accounts, credit cards, and payment methods.
Implementation Tips:
- Open a business checking account and savings account specifically for Amazon operations
- Apply for a business credit card used exclusively for business expenses
- Create separate PayPal or payment processing accounts for business transactions
- Document any personal funds added to the business as either loans or capital contributions
Warning Signs of Poor Practice:
- Frequently transferring money between personal and business accounts without documentation
- Using personal credit cards for business purchases without proper tracking
- Paying personal expenses from business accounts
2. Implement Detailed Financial Categorization Systems
Best Practice: Create a comprehensive chart of accounts specifically designed for Amazon sellers that accurately reflects your business model.
Implementation Tips:
- Develop separate income categories for different Amazon marketplaces (US, UK, EU, etc.)
- Create distinct expense categories for Amazon’s various fee types:
- Referral fees
- FBA fees
- Storage fees
- Advertising costs
- Long-term storage fees
- Removal and disposal fees
- Track inventory-related expenses separately from operational expenses
- Establish clear categories for returns, refunds, and customer reimbursements
3. Master Amazon Settlement Reports
Best Practice: Develop a system to process Amazon’s biweekly settlement reports, which contain critical financial data.
Implementation Tips:
- Download and archive all settlement reports for each disbursement period
- Reconcile settlement reports with actual bank deposits
- Review for discrepancies in fees, refunds, or adjustments
- Develop a consistent process for coding each transaction type
- Consider using software that automatically processes settlement reports
Advanced Technique: Create a settlement reconciliation checklist that includes:
- Matching deposit amount to settlement total
- Reviewing refund activity for unusual patterns
- Checking for Amazon fee changes
- Verifying inventory reimbursements
4. Establish Robust Inventory Management Protocols
Best Practice: Maintain accurate perpetual inventory records that track not only quantity but cost basis for each SKU.
Implementation Tips:
- Record all inventory purchases with dates, quantities, and per-unit costs
- Track inventory across multiple locations (FBA warehouses, 3PL facilities, in-transit)
- Implement a consistent inventory valuation method (FIFO, LIFO, or average cost)
- Conduct regular physical inventory counts to reconcile with system records
- Document inventory adjustments, removals, and disposals
Advanced Technique: Implement cycle counting procedures where portions of inventory are counted on a rotating schedule to maintain accuracy without disrupting operations.
5. Develop Comprehensive Sales Tax Management
Best Practice: Create a systematic approach to monitoring, collecting, and remitting sales tax across multiple jurisdictions.
Implementation Tips:
- Maintain documentation of economic nexus thresholds for each state
- Track sales by state to monitor when thresholds are approaching
- Register for sales tax permits in states where required
- Utilize automated sales tax calculation and collection tools
- Create a tax compliance calendar with filing and payment deadlines
6. Implement Period Close Procedures
Best Practice: Establish a formal month-end and quarter-end closing process to ensure completeness and accuracy of financial records.
Implementation Tips:
- Create a closing checklist that includes:
- Bank reconciliations
- Credit card reconciliations
- Amazon settlement reconciliations
- Inventory reconciliation
- Accounts payable review
- Prepaid expense allocation
- Fixed asset depreciation
- Lock accounting periods after closing to prevent unauthorized changes
- Generate standard financial reports at each close
- Review key performance metrics
7. Leverage Technology and Automation
Best Practice: Utilize specialized accounting software and automation tools designed for Amazon sellers.
Implementation Tips:
- Select accounting software with direct Amazon integration capabilities
- Implement automated data entry for transactions and settlements
- Use optical character recognition (OCR) for scanning and categorizing receipts
- Set up automated recurring entries for subscriptions and regular expenses
- Consider specialized eCommerce accounting solutions like SellAnalytix, A2X, or Xero with Amazon integrations
Advanced Bookkeeping Strategies for Amazon Sellers
1. Implement Activity-Based Costing
Track costs at the SKU level to understand true profitability after accounting for:
- Product cost
- Amazon fees
- Advertising costs
- Shipping and handling costs
- Storage costs
- Returns and customer service costs
2. Create a Financial Dashboard
Develop a customized dashboard tracking key metrics:
- Gross profit margin by SKU
- Advertising cost of sales (ACoS)
- Return rate
- Inventory turnover
- Days inventory outstanding
- Cash conversion cycle
3. Conduct Profitability Analysis
Regularly analyze profitability from multiple angles:
- By product/SKU
- By product category
- By marketplace
- By fulfillment method (FBA vs. FBM)
- By customer segment
4. Document Standard Operating Procedures
Create detailed documentation for all bookkeeping processes:
- New product setup and cost tracking
- Settlement report processing
- Month-end closing procedures
- Tax filing processes
- Inventory reconciliation
The Role of Specialized Accounting Software
Modern Amazon sellers benefit tremendously from specialized accounting software that offers:
- Amazon Integration: Direct connection to Amazon Seller Central for automatic transaction import
- Settlement Automation: Automated processing and categorization of biweekly settlement reports
- Multi-Channel Support: Consolidated financial tracking across multiple marketplaces
- Inventory Management: Perpetual inventory tracking with cost basis
- Sales Tax Automation: Calculation, collection, and filing support for sales tax
- Financial Reporting: Amazon-specific reporting templates and dashboards
- Data Security: Secure storage and backup of financial records
Comparing Accounting Software Options
When selecting accounting software for an Amazon business, consider these factors:
| Feature | General Accounting Software | Amazon-Specific Solutions |
|---|---|---|
| Amazon Integration | Limited or requires add-ons | Native and comprehensive |
| Settlement Processing | Manual or limited | Automated and detailed |
| Fee Categorization | Generic categories | Amazon-specific fee structure |
| Inventory Tracking | Basic quantity tracking | FBA-aware with location tracking |
| Cost Analysis | General product costing | SKU-level profitability analysis |
| Sales Tax | Basic support | Marketplace facilitator aware |
Conclusion
Implementing these best bookkeeping practices helps Amazon sellers build financial clarity, maintain compliance, and make data-driven decisions. As the business grows, these foundational practices scale to support increasingly complex operations. By combining proven bookkeeping methodologies with specialized software solutions, Amazon sellers can transform financial management from a necessary administrative task into a strategic business advantage.