Accounting Method for Amazon Bookkeeping: How To Choose?

Why is Accounting Method Important to Amazon Bookkeeping


Table of Contents

Table of Contents

Are you an Amazon seller trying to balance the many activities in your daily life? From sourcing products, listing and selling items to fulfilling orders, keeping up with all the responsibilities of running an Amazon business can be challenging.

But one crucial aspect that can’t be overlooked is bookkeeping.

Keeping your financial records up-to-date ensures your business’s ongoing profitability and success.

In this blog post, we’ll explore the world of bookkeeping for Amazon sellers and help you choose the correct accounting method to manage your finances more efficiently. So, let’s dive in!

Key Takeaway

  • Using the proper accounting method for your Amazon business is essential to ensure its success. Without adequate bookkeeping, you may be unable to make informed business decisions or run into problems with taxes and legal issues.
  • Two common accounting methods for Amazon sellers are cash basis and accrual accounting. Cash basis accounting records transactions when cash is received or paid out, while accrual accounting records transactions when earned or incurred.
  • Several factors, including business size, sales volume, inventory management, and tax implications, help you decide the best accounting method for your business.

Why is Accounting Method Important to Amazon Bookkeeping?

You’re an Amazon seller who has been running your business without any proper bookkeeping or accounting methods.

You’ve been making sales and purchasing inventory but haven’t tracked your transactions or expenses.

At first, this may not seem like a big deal. After all, you’re making sales and bringing in money, so why does it matter if you’re not keeping track of every little detail?

However, as your business grows, you’ll start encountering problems.

For instance, you may not know how much money you make since you haven’t accurately tracked your income and expenses. Therefore, you find it difficult to make informed business decisions or plan for the future.

On the other hand, if you choose an accounting method, you can easily track your inventory and expenses, monitor your net profit, and save money. This method can give you a competitive advantage over other Amazon Sellers and help your business grow.

If you haven’t already done so, take the time to research and choose the accounting method that’s right for you and your store.

Get your comprehensive guide about Amazon Sales Tax in 2023

Don’t overlook the importance of proper bookkeeping, as it can make all the difference in the success of your business.

Next, we will introduce you to two standard accounting methods: cash basis accounting and accrual accounting.

Cash Basis Accounting

Cash accounting recognizes revenue when you receive payment from a customer and expenses when you pay for items such as inventory, shipping costs, and referral fees. This method may seem easy to use, but it can lead to problems when operating your business.

For instance, let’s say you receive an order in March, but the customer doesn’t pay until April.

With cash accounting, you won’t recognize the income until the following year, which can cause issues with tracking your net income and making informed business decisions.

Furthermore, this method may not accurately represent your business’s financial health.

Suppose you purchase inventory in March but don’t pay until April. In that case, you may not record the expense in the correct period, which can skew your financial statements.

Accrual Accounting

Next, accrual basis accounting records revenue and expenses when earned, regardless of when cash is received or paid.

While this method can be more complex than other methods, such as cash accounting, it accurately represents your business’s financial situation. This is because it considers all transactions, even those not paid for.

However, there can be some problems when operating under the accrual basis accounting method. For example, suppose you receive a large inventory order in March but don’t pay for it until April.

In that case, you’ll still need to record the expense in March, even though you won’t be paying for it until the next month. This can sometimes make managing cash flow difficult and planning for expenses.

As an Amazon seller using accrual basis accounting, you must record revenue when you make a sale, even if the customer hasn’t paid yet.

Cash vs Accrual Accounting Which One is Better

Cash vs. Accrual Accounting: Which One is Better?

  Pros  Cons
Cash Basis Accounting Simple and easy to use

Helpful in managing cash flow

It does not require extensive accounting knowledge.

Taxes are only paid on income received.

It provides a simple way to record transactions.
Not suitable for complex businesses.

It does not account for unpaid expenses or revenue.

Revenue and costs may not be matched correctly.

Revenue may be overstated in the short term.

It may not accurately reflect the actual financial position of the business.
Accrual Accounting Provides a more accurate picture of ongoing profitability.

Ideal for businesses with a high volume of sales.

Helps to identify long-term trends.

Can help with inventory management.
It can be complex and difficult to understand.

Requires more time and effort to manage.

It may need a professional bookkeeper.

Revenue may be understated in the short term.

How to Choose The Right Accounting Method for Amazon FBA Sellers?

Choosing the proper accounting method for small business owners depends on several factors. Let’s look at some of the most critical factors you should consider.

#1: Business Size and Complexity

If you’re a small business owner with a limited sales volume, cash basis accounting system might be a good fit for you.

This method is straightforward; it records business transactions only when cash is received or paid out. It’s a popular choice for new or small businesses that don’t have a lot of financial transactions to keep track of.

However, consider using accrual accounting instead if your business is complex. This means you’ll have a more accurate representation of your financial situation, especially if you have a high volume of sales or many expenses to track.

#2: Sales Volume and Revenue

Consider using the accrual accounting method if you’re a seller making many sales.

Also, accrual accounting provides a more accurate picture of your ongoing profitability, which can be crucial for managing your business effectively.

However, there can be some problems when operating under the accrual accounting method, especially when dealing with a high sales volume.

For instance, managing your cash flow and planning for expenses is challenging when dealing with large amounts of money.

On the other hand, if your sales volume is low, cash basis accounting may be a more suitable option for you.

This method is simpler to manage because it only records income and expenses when cash is exchanged.

#3: Inventory Management

Inventory management can be a real challenge for Amazon sellers. Keeping track of inventory costs and ensuring you have enough stock to fulfill orders is critical to the success of your business.

Accrual accounting can be an excellent option for Amazon businesses that involve inventory management. This method allows you to accurately match revenue and expenses, which is crucial when tracking inventory costs.

By recording revenue when you make a sale and expenses when you receive goods or services, regardless of when payment is received or made, you can have a more accurate picture of your inventory costs, goods sold, and profit margins.

#4: Tax Implications

Taxes can be a bit of a headache for Amazon sellers, and your accounting method can significantly impact your tax obligations.

For instance, if you collect sales tax, you may need to use accrual accounting as it records revenue when it’s earned, regardless of when payment is received.

So, you’ll be better equipped to handle your tax obligations using a suitable accounting method. With this method, you can accurately track your income and expenses, making filing sales tax easier and avoiding any potential issues with the state.

In Conclusions

In conclusion, bookkeeping for Amazon sellers is essential to managing your business. Choosing the proper accounting system can help you manage your financial records accurately, save money, and ensure ongoing profitability.

Consider the factors discussed in this blog post when selecting an accounting method that works best for your Amazon business.

Additionally, you can use accounting software or hire a professional bookkeeper to help you accurately manage bookkeeping data from your Amazon Seller Central account.

Take Control of Your Amazon Seller Bookkeeping with XOA TAX

Are you struggling with your bookkeeping? Do you need help managing your financial records accurately?

If so, it’s time to contact an expert today. With the help of a professional bookkeeper, you can streamline your bookkeeping process and ensure that your business is running at its best.

  • Save time: Instead of spending hours on bookkeeping, you can focus on growing your business and increasing your profits.
  • Accurate financial records: A professional bookkeeper can ensure that your financial records are accurate, up-to-date, and organized.
  • Tax compliance: A bookkeeper can help you stay on top of your tax obligations to avoid any potential issues with the state.
  • Business insights: With accurate financial records, you can gain valuable insights into your business and make informed decisions about its future.

Don’t let bookkeeping hold you back from running a successful Amazon Seller bookkeeping. Contact an expert today and experience the benefits of professional bookkeeping!


3 Responses

Leave a Reply

Your email address will not be published. Required fields are marked *

You may also like.

Tik Tok Feeds

Do you wish to continue with the call?

Please provide your phone number and we will contact you within 2 hours

You have successfully submitted your phone number

Be 85% more effective!

Take care of your business’s finances

  anywhere    anytime

with XOA TAX's bookkeepers.

Please provide your phone number and we will contact you within 2 hours

You have successfully submitted your phone number