Accounting for Amazon Sellers: The Ultimate Guide to FBA Bookkeeping

Introduction

Managing finances as an Amazon seller can be complex (and life is complex enough as it is), but proper ecommerce accounting is really crucial for measuring your profitability and keeping you compliant. With constant platform changes and tax regulations that seem to be getting more complex from day to day, staying on top of your financial management is super important. This awesome guide covers everything from Amazon accounting basics to advanced FBA bookkeeping strategies, tax compliance, and important policy updates like Amazon's new deferred transactions policy. Because, as Jeff Bezos famously said, it is always day one at Amazon- and it should also always be day one for your Amazon bookkeeping- otherwise you will get lost in the weeds, and have real trouble making prudent business decisions and staying ahead of the game. And in the poorly differentiated eCommerce market- if you don’t swim, you sink. Let’s go!

Understanding Amazon Accounting Basics

Bookkeeping vs. Accounting: What's the Difference?

Although often used interchangeably, bookkeeping and accounting serve different functions in general, and specifically in your Amazon business:

Bookkeeping involves recording daily transactions, categorizing income and expenses, and reconciling accounts. It's the systematic recording of financial transactions and serves as the foundation for all financial reporting. For Amazon sellers, this includes tracking sales, fees, refunds, and inventory costs. And everything in between. Good ecommerce bookkeeping is crucial to maintaining a tight and seaworthy ship.

Accounting, on the other hand, focuses on financial analysis, tax compliance, and business strategy based on bookkeeping records. In other words, it involves interpreting financial data to make informed business decisions, preparing financial statements, and ensuring compliance with tax regulations. Good accounting helps you understand your business's financial health and identify growth opportunities, from determining pricing strategy, cutting out poor (cross financed SKUs) and even carrying out best practice ecommerce inventory management. 

Creating an Effective Chart of Accounts

A well-structured ecommerce chart of accounts is the backbone of your Amazon business's financial management system. 

Key components of an Amazon seller's chart of accounts:

1. Assets: Which pretty much means everything that your business owns, such as cash (plus cash equivalents, but let’s not get technical), inventory, accounts receivable, equipment
   
   • It is worth considering creating separate inventory accounts for each fulfillment method (FBA, FBM)
   • Another possibility is to include an account for Amazon payments pending deposit (otherwise known as UDFs- this is a major Amazon pain point- see more below).
2. Liabilities: Which means everything that your business owes to others, such as accounts payable, sales tax collected (not a P&L item, folks) and loans (either internal or third-party).
   
   • It is worthwhile to track sales tax collected by state (and again, make sure your accountant is not including your sales tax in your P&L). 
3. Equity: Which pretty much means assets less liabilities, such as owner's capital, retained earnings (from previous years), owner draws etc.
4. Revenue: Which reflects your sales- the top part of the P&L. Try to break down revenue by marketplace (US, UK, Canada, etc.)
   
   • Make sure to track Amazon reimbursements separately
5. Expenses: Are comprised of your costs of goods sold (COGS), Amazon fees (there’s quite a few of them), advertising costs (both variable and fixed), shipping costs and operating expenses.
   
   • It is a good idea to create detailed subcategories for Amazon fees (referral, fulfillment, storage)
   • Also, separate advertising expenses by campaign type

A properly structured chart of accounts helps you:

• Generate accurate financial statements
• Analyze profitability by looking at different metrics
• Track KPIs (key performance indicators)
• Simplify tax preparation (trust me, it’s hard enough as it is)

Which Financial Statements Amazon Sellers Should Track

To keep a granular picture of your Amazon business, you should really be reviewing these essential financial statements on a daily (or at least weekly) basis:

Profit and Loss Statement (P&L):

This statement summarizes revenue, costs, and expenses over a specific period, typically monthly, quarterly, or annually (if using Finaloop, you’ll have this on a daily basis). It reveals your business's profitability and helps identify areas where you might be overspending or underperforming, or perhaps not charging enough.

Balance Sheet:

The balance sheet shows your business's assets, liabilities, and equity at a specific point in time. It provides a snapshot of what your business owns (assets), what it owes (liabilities), and the resulting net worth (equity). For Amazon sellers, significant assets often include inventory and accounts receivable/UDFs (money Amazon owes you), along with Accounts Payable (money you owe to others, like your suppliers). 

Cash Flow Statement

This statement tracks the movement of cash in and out of your business. It helps you understand your liquidity and ensure you have enough cash to cover expenses and investments, and can help you build forward your cash forecasting (which every business should have). Amazon sellers should pay particular attention to cash flow since Amazon's payment schedule can affect when money is actually received (hint- it is delayed). This statement is more operational, and slightly less financial than the P&L.

Categorizing Amazon Income and Expenses

Proper categorization of income and expenses is crucial for good reporting and remaining tax compliant:

Income Sources:

• Amazon marketplace sales
• FBA reimbursements for lost or damaged inventory
• Affiliate earnings via Amazon Associates
• Wholesale orders through Amazon Business
• Other platform sales (if you are multichannel)

Common Expenses:

• Seller fees (referral fees, subscription fees)
• Advertising costs (PPC campaigns, sponsored products)- can be both variable and fixed
• Shipping and fulfillment costs
• Product costs
• Software subscriptions 
• Storage fees
• Professional services 
• Payroll
• Insurance
• Office supplies and equipment

Bookkeeping for Amazon Sellers: Step-by-Step Guide

‍

Setting Up a Bookkeeping System for Amazon

Choose between cash vs. accrual accounting for bookkeeping for Amazon sellers:

• Cash accounting: Cash accounting is simpler, but more rudimentary than its accrual accounting sibling. It pretty much records income when the payment is actually received and records expenses when they're actually paid. This is simpler but may not accurately reflect your business's financial status if there are timing differences between sales and payments. To sum it up- easy but inaccurate.
• Accrual accounting: Records income when it's earned and expenses when they're incurred, regardless of when money changes hands. This provides a more accurate picture of your business's financial health and is usually required for larger businesses. For example, if you prepay an expense, that would be seen as an expense from a cash accounting standpoint, but as an asset from an accrual perspective.

Most serious Amazon sellers end up transitioning to accrual accounting as their business grows, as it offers a more accurate representation of financial performance. If you don’t have accrual accounting, you will end up having huge swings between when your inventory is purchased (big cash expense) and when it is sold (big revenues) and it will be very difficult to manage and track your business profitability.

Real time ecommerce accounting software like Finaloop can streamline your bookkeeping process, by integrating with Amazon's reporting systems, automatically categorizing transactions, and generating real-time financial reports. The right software can save countless hours of manual data entry and reduce errors. Just saying.

E-commerce Bookkeeping Services: When to Outsource

As your Amazon business grows, managing bookkeeping in-house can become overwhelming and frankly, quite difficult. You should really consider outsourcing to e-commerce bookkeeping services when:

• You're spending too much time on bookkeeping instead of growing your business
• You lack the necessary expertise in e-commerce accounting practices (it’s complicated)
• Your business has multi-channel or international sales (even multi-state can be complex)
• You need more sophisticated fp&a (financial planning and analysis)

Benefits of specialized e-commerce bookkeeping services:

1. Platform expertise: Professionals that are familiar with Amazon's complex fee structure and reporting systems
2. Time savings: You can focus on your business growth while experts handle financial management
3. Accuracy: This way you can reduce errors in financial reporting and tax compliance
4. Scalability: Services that can grow with your business
5. Strategic insights: Professional analysis of financial data to inform business decisions

When selecting a bookkeeping service, look for providers with specific Amazon and e-commerce experience, like Finaloop, which has tailored solutions for ecommerce sellers.

Recording Amazon Sales and Fees

Amazon charges various fees that directly impact your profit margins. Understanding these fee structures and learning how to accurately track these fees is super important for profitability analysis (for specifics about types of fees, see below).

To accurately track revenue and fees:

1. Download reports from Amazon Seller Central on a regular basis
2. Make sure to reconcile these reports with your bank deposits (taking timing differences into account)
3. Make sure to account for fees, refunds, and adjustments

Managing Inventory Costs and COGS

Cost of Goods Sold (COGS) represents the direct costs of products (in general, and specifically, those) sold on Amazon. Accurately tracking COGS is crucial for determining profitability and tax reporting. In other words, make sure to be on top of your landed costs.

COGS typically includes:

• Product purchase costs
• Shipping in (meaning shipping to Amazon warehouses or other warehouses)
• Import duties and customs fees (watch out for those tariffs)
• Product packaging costs (generally)
• Labeling costs

Inventory valuation methods:

Now, when you carry out accrual based accounting, you recognize inventory in your books, and only recognize an expense (COGS) when the inventory is actually sold. Now, the question arises, which inventory are you actually selling at a given time? Meaning, let’s say you buy inventory on January 1, March 1 and May 1, and each has a different cost. Which cost do you recognize when you actually sell that inventory (assuming all products bought are the same).

• FIFO (First-In-First-Out): Assumes the first products purchased are the first ones sold. This method is generally preferred for Amazon sellers as it aligns with how Amazon typically fulfills orders (think of the supermarket trying to get rid of the old milk cartons first, by putting them in the front of the fridge).
• LIFO (Last-In-First-Out): Assumes the most recently purchased products are sold first (think of yourself, trying to get the newest milk carton out first). This is less common for Amazon sellers and problematic in general from certain accounting standards perspective, although it could have certain tax advantages..
• Average Cost: Calculates an average cost for all similar inventory items. This can be useful for sellers with frequent inventory purchases at varying prices as it just averages everything out.

Proper inventory management ensures you're calculating COGS correctly and maintaining accurate financial records. If you aren’t, you will not be able to actually figure out what your landed costs are, which will complicate your pricing, your visibility into which SKUs are top performers vs. cross financers etc. 

Tax Compliance for Amazon Sellers

Understanding Tax Obligations for Amazon Businesses

Income tax vs. sales tax

Amazon sellers (like most businesses) must manage two distinct tax obligations- income tax and sales tax. Income tax applies to business profits and must be reported regardless of business structure. Whether you operate as a sole proprietor reporting on Schedule C or as an LLC/corporation filing separate returns, all Amazon income (along with your other income) is taxable. Income tax obligations exist at both federal and state levels, and sometimes different rules apply on the state vs. the federal level.

Sales tax, on the other hand, is collected from customers and remitted to state and local tax authorities. With Marketplace Facilitator laws now in effect across most states, Amazon handles much of this collection and remittance process—but sellers remain ultimately responsible for compliance, especially for multi-channel sales, when non-marketplaces, like Shopify for example, are involved.

Nexus laws and how they impact Amazon sellers

Nexus means that there is a tax connection between your business and a jurisdiction. Physical nexus occurs when you have inventory in warehouses, employees, or offices in a state. Economic nexus is triggered when sales exceed certain thresholds (typically $100,000 or 200 transactions- varies based on state) in a specific state.

For Amazon sellers, inventory stored in FBA warehouses can create a physical nexus in those states. This means you may have tax obligations in multiple states even if your business is based in just one location. Marketplace Facilitator laws help manage sales tax collection, and as of 2024, nearly all states with sales tax have marketplace facilitator laws requiring Amazon to collect and remit sales tax. 

In any event, tracking where you have nexus remains really important to make sure that you are fully compliant.

Best Tax Strategies for Amazon Sellers

Deductible business expenses

Maximize legitimate tax deductions by tracking all business expenses (and making sure to bifurcate between your business and non-business expenses).

 Common deductions for Amazon sellers include:

• Product costs and shipping
• Amazon fees (referral, FBA, storage)
• Advertising and marketing expenses
• Software subscriptions and tools
• Home office expenses (there can be real potential here)

Also, keeping on top of your tax structure can be helpful in minimizing your tax obligations as well (see below).

Tax-saving tips for ecommerce entrepreneurs

It is definitely worth considering forming the right kind of business entity—S-corporations can provide self-employment tax savings for profitable businesses, but you need to make sure that it makes sense from a cost benefit analysis. Another idea is to make estimated quarterly tax payments to avoid underpayment penalties. 

Handling Sales Tax for Amazon Sellers

Sales tax compliance has become increasingly complex for Amazon sellers, with regulations varying by state and jurisdiction.

Multi-channel sales tax considerations:

• Amazon handles sales tax for Amazon sales in marketplace facilitator states
• Sellers must handle sales tax for non-Amazon channels themselves (such as Shopify)

Sales tax compliance steps:

1. Determine where you have nexus:
   
   • Map your FBA inventory locations
   • Track sales by state to identify economic nexus triggers
   • Document physical presence in any states
2. Register for sales tax permits in states where required
3. Configure tax collection settings on non-Amazon platforms
4. Track and document all sales tax collected:
   
   • By Amazon (through marketplace facilitator laws)
   • By your business on other platforms
5. File sales tax returns according to each state's requirements:
   
   • Some states require returns even when Amazon collects all tax
   • Filing frequencies vary 
6. Keep detailed records of all sales tax transactions and filings

You can consider using specialized sales tax software like TaxJar, Avalara, or Numeral, and this can significantly simplify this complex process.

Reconciling Amazon Payments and Bank Statements

Regular account reconciliation can make sure that your financial records actually match your transactions and can help identify discrepancies or errors.

Reconciliation best practices:

1. Compare Amazon deposits to reports
2. Match individual transactions with corresponding fees and refunds
3. Identify and investigate any discrepancies
4. Adjust your bookkeeping records as needed
5. Document all reconciliation activities

Amazon FBA Accounting: Special Considerations

Differences Between Amazon FBA and FBM Accounting

FBA (Fulfillment by Amazon) sellers face unique accounting challenges:

• Tracking inventory stored across multiple Amazon fulfillment centers
• Managing complex fee structures (such as fulfillment, storage, long-term storage)
• Accounting for inventory lost or damaged in Amazon's warehouses
• Handling reimbursements from Amazon

FBM (Fulfillment by Merchant) sellers have different considerations:

• Tracking their own inventory storage costs
• Managing shipping expenses and supplies
• Reconciling carrier fees and shipping insurance
• Accounting for customer returns handled directly

Tracking FBA Storage and Fulfillment Fees

Breakdown of Amazon seller fees:

1. Referral fees: Category-specific fees:
   
   • Most categories: 15%
   • Electronics: most 8%
   • Jewelry: 20% (capped)
   • Amazon device accessories: 45%
2. FBA fees:
   
   • Fulfillment fees (other than apparel and dangerous goods): Based on shipping weight, dimensions, product size and fee category
   • Small Standard-size items: $3.06 to $3.65 per unit
   • Large Standard: $3.68 to $6.92 per unit
   • Oversize items: $9.64 to $194.95+ per unit
   • Multi-channel fulfillment: Higher rates for orders fulfilled through other channels
3. Monthly subscription fees:
   
   • Based on time of year, volume, size and amount of time inventory is in warehouse
   • Individual seller: No monthly fee, but $0.99 per item sold
   • Professional seller: $39.99 monthly flat fee
4. FBA storage fees:
   
   • Monthly storage: $0.78 to $2.66 per cubic foot (general standard size, varies by season)
   • Long-term storage fees apply to items stored for more than 180 days and can significantly impact profitability.
5. Advertising costs:
   
   • Sponsored Products: Cost-per-click model
   • Sponsored Brands: Cost-per-click for custom headline ads
   • Sponsored Display: Cost-per-click for product display ads
6. Additional fees:
   
   • FBA removal and disposal fees
   • Returns processing fees
   • Inventory placement service
   • Labeling services

How FBA Sellers Should Handle Inventory Valuation

Proper inventory valuation is critical for accurate financial reporting and tax compliance:

1. Conduct regular inventory counts to verify Amazon's records.
2. Write down damaged or obsolete inventory to reflect its true value.
3. Factor in storage costs 
4. Track inventory transfers between fulfillment centers or to and from your own facilities.
5. Monitor unsold inventory to avoid excessive storage fees and potential write-offs.

Common Amazon Accounting Mistakes and How to Avoid Them

Not tracking all expenses accurately

Many sellers don’t capture all business expenses, especially smaller recurring costs that accumulate over time. Sloppiness can really kill you (is not just something I tell my son). Regular financial reviews can make sure to help you identify missing expense categories.

Misclassifying Amazon fees

Amazon charges various fees that can impact profitability in different ways. Categorizing these fees improperly can distort your profit analysis. Make sure to create detailed sub-accounts for different fee types (referral, fulfillment, storage, advertising) and regularly review Amazon reports to ensure the proper classification (or just use Finaloop). 

Failing to reconcile accounts regularly

Infrequent reconciliation leads to compounding errors and financial misunderstandings. Regular reconciliation identifies issues early before they become significant problems. And yet again, if you use Finaloop, this real time reconciliation is done for you.

Ignoring inventory accounting best practices

Poor inventory management directly impacts financial statements and tax reporting. Make sure that you implement consistent inventory valuation methods, that you conduct regular physical inventory counts, and properly account for damaged or obsolete inventory (because writing off inventory at year end can be a real killer). Also, make sure to track inventory across all warehouses and sales channels in order to maintain accurate COGS calculations.

Overlooking sales tax compliance

Despite Marketplace Facilitator laws, sellers remain responsible for overall sales tax compliance. Make sure to use specialized software in order to track changing nexus thresholds and requirements across jurisdictions. Also, you should register for sales tax permits where needed and maintain detailed records of all taxes collected and remitted, whether by Amazon or directly by your business.

Final Thoughts: Mastering Accounting for Amazon Sellers

Successful Amazon accounting requires understanding the platform's unique fee structure, implementing proper inventory management practices, and ensuring full and comprehensive tax compliance. Specialized e-commerce accounting practices differ from traditional business accounting and require specific expertise and systems to give you the on-time and real-time accounting you need to run your business and make it thrive.

Proactive financial management prevents costly mistakes and identifies profit opportunities. Regular reconciliation, proper categorization, and consistent review of financial statements keep your business on solid financial footing. As your Amazon business grows, accounting complexity increases—investing in proper systems early establishes a foundation for scalable success. Better earlier than later. Trust me, you’ll thank me later.

Finaloop's specialized e-commerce bookkeeping services automatically process your Amazon data, tracks all fees and expenses, and generates actionable financial insights. All in real time and with top-notch bookkeepers in the backend. Our platform is designed specifically for online sellers, with built-in Amazon expertise and integration capabilities. Visit www.finaloop.com today to see how our Amazon-specific accounting solutions can transform your financial management and help scale your e-commerce business.