As an Amazon Seller the margin for error can be thin and the difference between a successful business and a fledgling one often lies in the details of how your business is managed. That’s why it's important to understand not just the best practices of running a store but to have a strong understanding of the pitfalls and mistakes that can be avoided.
We don’t want you to learn lessons the hard way so in this post we are going to review the 5 most common bookkeeping mistakes that we see Amazon Sellers make when managing their stores.
- Inventory Mismanagement
When it comes to working with Amazon, your inventory is yours until you sell it. We see it all the time where a store incorrectly marks inventory as sold when, in fact, it was simply shipped to an Amazon warehouse.
Just because you’ve shipped inventory to Amazon doesn’t mean that it is off your books. Your inventory stays on your books until Amazon ships it out to your customers.
- Using the Wrong Accounting Methods
Many Amazon Sellers run into the mistake of running their business on a cash basis instead of using the accrual method of accounting.
Amazon stores are very much inventory based businesses and utilizing a cash based method of accounting, where you identify everything that comes in as income and everything that comes out as an expense, can get you into trouble. This is because inventory is not an expense on your books. When there is a purchase of a significant amount of inventory, in the cash based method, it will inflate your expenses and provide an inaccurate view into the reality of your situation.
- Not Properly Accounting for Withheld Funds
The Amazon Marketplace has many fees and costs associated with doing business with it. By not properly accounting for when Amazon withholds funds you’re doing your business a disservice and not providing an accurate portrayal of business activities.
As an example, if you made $100,000 in sales and Amazon charges $50,000 in fees then Amazon might withhold $25,000 from the remaining $50,000. In this instance, sales should be reflected as $100,000 and the difference in what Amazon is withholding is shown as a receivable.
Here is a real world horror story from a seller whose funds were held by Amazon.
- Not Recording Sales on a Monthly Basis
Amazon pays its Sellers in two week increments and those increments aren’t necessarily on the first days of the month. This means that it is very possible to get a payout from Amazon that includes dates from two different months.
For example, Amazon might make a payment to a Seller covering a date range of December 20-January 5. It would be a mistake to record this in the January books (the payout month) since two months are being reflected, most of them in December. The best practice is to break out the revenue for the months when those sales actually occurred.
- Not Having Reports on Cost of Goods Sold (COGS)
What happens when the price of your inventory changes? When the cost of a product one day is $5 and the next day you buy it for $8. Or as taxes and tariffs on imported goods change? It’s rare that the cost of doing business remains fixed over time. There will always be changing variables at play and successful Sellers will have a clear system in place to account for those changes or else risk having inaccurate numbers, which could cost them big time.
There are so many traps that a business owner can fall into and when it comes to managing a business on Amazon the best advice we can give you is to understand how Amazon does business inside and out. When do they pay Sellers? How much are the fees and general costs to do business in the Amazon Marketplace? How does Amazon manage Sellers inventory? Knowing these details and all the other intricacies associated with selling on the Amazon Marketplace will save Sellers major headaches down the road.
When it comes to the specific needs of inventory management and accounting as an Amazon Seller, syncing the data collected in ConnectBooks to your QuickBooks account will take away the pain of doing all this work yourself. Schedule a demo and learn more about how ConnectBooks can help you avoid these common pitfalls and many others with selling on Amazon.
