CPA for Amazon Seller Picking Up Where Amazon Ends
Amazon provides sellers with detailed reports for sales, payouts, inventory, gross margin, fees and sales by state. A CPA for Amazon sellers should know how to use that information as the starting point for accurate Amazon accounting. There is no reason to unnecessarily recreate information Amazon already provides.
Our eCommerce accounting process combines Amazon Seller Central reports with QuickBooks Online, Zoho Books, A2X or the client’s existing Amazon accounting integration. We use these systems to produce monthly financial statements for the entire business. Amazon provides the detail about activity taking place on its platform. Your accounting records should agree with that activity while adding information Amazon doesn’t track. That includes payroll, operating expenses, bank and credit card activity, debt, other sales channels, assets and liabilities.
For our Amazon seller accounting clients, we use Amazon reporting to support the revenue, fees, sales tax and inventory recorded in the accounting system. Clients may connect Amazon directly to their accounting software or use an integration such as A2X. We generally work with the system the seller already has in place when it works properly.
We don’t need dozens of revenue or cost-of-goods-sold accounts in QuickBooks simply because Amazon provides detailed transaction data. Amazon can retain much of that detail. QuickBooks or Zoho Books should contain the information needed to produce monthly financial statements we are comfortable relying on. The accounting system also adds the financial activity Amazon doesn’t have.
The result is a reconciled profit and loss statement and balance sheet that agree with the underlying Amazon activity. Those financial statements show the results of the entire eCommerce business.
They also provide something Amazon reporting cannot: the accounting foundation we need to prepare income tax projections and plan for the seller’s federal and state income taxes.
Meet Our eCommerce Accounting Team
Our CPA for Amazon sellers team works with Amazon and Shopify sellers on monthly accounting, inventory, income tax compliance and tax planning.
Matt Wilkins, CPA
Matt is a CPA and works with eCommerce businesses and Amazon and Shopify sellers on accounting and tax matters, including federal and multistate income tax compliance and tax planning. He brings more than 17 years of accounting and tax experience to the eCommerce team.
Edward White, MSA
Eddie works directly with eCommerce clients on monthly accounting and the flow of information from Amazon, Shopify and A2X into QuickBooks Online. His work focuses on producing reliable monthly financial statements and identifying accounting issues involving inventory, cost of goods sold and gross margin.
Mary-Kate Sweet
Mary-Kate supports the monthly accounting process for eCommerce clients, including account reconciliations and the preparation of financial information used by the team for monthly reporting and tax planning.
Amazon Gross Margin and Inventory Should Agree With Your Accounting
Inventory accounting isn’t necessarily complicated, but it requires more attention to detail than accounting for many service businesses. A single inventory item may affect as few as three accounts. It moves from a purchase to inventory on the balance sheet and ultimately to cost of goods sold. Businesses with work in process or additional inventory costs may use several more accounts before selling that item.
Using Gross Margin to Test Amazon Inventory
One of the first questions we may ask an Amazon seller is simple: How do you normally mark up your products?
For a business with a manageable number of SKUs, the answer helps us estimate the blended gross margin we should expect in QuickBooks Online or Zoho Books. We aren’t trying to calculate the exact margin on every product. Instead, we test whether gross profit, cost of goods sold and inventory make sense based on how the company buys and sells its products.
We perform this gross-margin and inventory test quarterly for many of our eCommerce accounting clients. We don’t force the accounting to match a predetermined gross margin. Instead, we use gross margin as a reasonableness test. When actual results differ significantly from the seller’s markup and historical performance, we investigate why.
Inventory Cutoff Matters
Frequently, the problem is cutoff. A vendor bill may not have entered the accounting system even though the related products are already included in inventory. In other cases, the company may have already sold the inventory. These timing differences can affect purchases, inventory, cost of goods sold and ultimately the profit reported on the financial statements.
Physical counts aren’t always practical for Amazon sellers. Inventory may sit in Amazon fulfillment centers, third-party fulfillment centers, warehouses and other locations.
We compare Amazon inventory information with the accounting records, purchasing activity and expected gross margin. Together, these sources help us evaluate whether the inventory and cost of goods sold in QuickBooks Online or Zoho Books are reasonable.
Accurate Inventory Improves Tax Planning
Inventory and cost of goods sold don’t just affect the gross-margin percentage on a profit and loss statement. They also affect net income, the balance sheet and ultimately taxable income.
Getting those numbers right gives us a better foundation for the income tax projections and planning we perform during the year.
What Should Amazon Sellers Track in QuickBooks?
Amazon and your accounting software don’t need to contain the same level of detail.
Amazon already provides detailed reporting for sales, payouts, inventory and marketplace activity. Recreating all of that detail in QuickBooks Online or Zoho Books can make the financial statements harder to use. Often, the additional detail provides little additional value.
What We Bring Into the Accounting Records
For most Amazon sellers, the accounting system can remain relatively simple. We can generally summarize sales and purchases while separately recording items such as Amazon service fees and sales tax paid.
Amazon activity may flow into the accounting system through a direct connection, A2X or another integration. The method matters less than the result. The activity needs to reach the correct accounts, and we need to reconcile it to Amazon’s payout information.
What Amazon Doesn’t Track
QuickBooks or Zoho Books then adds the activity Amazon doesn’t have. That includes payroll, overhead, bank and credit card transactions, debt, other sales channels, assets and liabilities.
The result is two different levels of information:
Amazon provides the detail about your Amazon sales.
Your accounting software provides the financial statements for the entire company.
Amazon Reports Can Help Identify Multistate Income Tax Requirements
Amazon provides reports showing gross revenue by state and the location of FBA inventory at month-end. Both provide useful information when we evaluate an Amazon seller’s state income tax filing requirements.
Gross Revenue by State Helps Us Determine Where to Look
Amazon’s state-by-state revenue information helps us identify where a business generates revenue. It also provides information we may need for state allocation and apportionment calculations.
Revenue in a state doesn’t automatically mean the business must file an income tax return there. State filing requirements vary. We need to consider the amount of activity in each state along with other factors.
Amazon’s month-end inventory information can also be important. Through the FBA network, an Amazon seller may have inventory physically located in multiple states. This can happen even when the business operates from a single location.
Amazon Doesn’t Know Your Company’s Net Income
Amazon can tell us how much revenue the business generated in each state. However, it doesn’t have the complete financial information needed to determine the company’s taxable income.
That comes from the accounting records.
The profit and loss statement combines Amazon revenue with cost of goods sold, payroll, overhead and the other expenses of operating the business. Once we have reliable net income, Amazon’s state-by-state information helps us evaluate how the company may need to report that income among the states where it has filing requirements.
This analysis can also uncover prior-year filing requirements for Amazon sellers that have operated in multiple states for several years.
When that happens, a Voluntary Disclosure Agreement may provide a way to address prior years before the state contacts the business.
Amazon Accounting Should Lead to Better Tax Planning
Amazon can tell you how much you sold and provide valuable information about your products’ performance. It can’t tell you how much income tax you are going to owe.
That requires complete accounting records.
Tax Projections During the Year
For our eCommerce clients, we generally prepare income tax projections two or three times during the year. If sales or net income changes significantly, we can update the projection instead of relying on an estimate prepared months earlier.
The company’s current financial statements provide the starting point. Once we complete the accounting, we can estimate taxable income and calculate expected federal and state income tax obligations.
That gives the business owner time to plan for estimated tax payments. It also gives us time to consider tax-planning opportunities before year-end.
Inventory Affects the Tax Projection
For an Amazon seller, getting inventory and cost of goods sold right is especially important.
An inventory cutoff problem doesn’t stop at the balance sheet. If cost of goods sold is wrong, net income is wrong. If net income is wrong, the income tax projection may be wrong too.
That’s another reason we pay attention to gross margin and inventory throughout the year instead of waiting until we prepare the tax return.
Amazon and Shopify Accounting Should Come Together
Many eCommerce businesses sell through both Amazon and Shopify. Each platform provides useful information about the activity within its own system. However, neither platform has the complete financial picture of the company. QuickBooks Online or Zoho Books brings those sales channels together with inventory, payroll, operating expenses, bank and credit card activity, debt and the other financial activity of the business.
This allows an Amazon and Shopify seller to see a consolidated profit and loss statement and balance sheet for the entire company. It also gives us the financial information we need to evaluate profitability, prepare income tax projections and provide tax planning throughout the year.
Monthly Accounting and Tax Services for Amazon Sellers
A CPA for Amazon sellers should do more than reconcile the bank accounts. When we tell an Amazon seller that the month’s accounting is complete, we are comfortable with the presentation of the profit and loss statement and balance sheet.
We compare the accounting activity to information available from Amazon. We review how transactions flow into QuickBooks Online or Zoho Books. Also, we consider inventory and cost of goods sold. We also look at whether gross margin is reasonable based on what we know about the business.
Those completed financial statements then become the starting point for the rest of our work. We generally prepare income tax projections two or three times during the year. We update them when sales or profitability changes significantly.
Reliable monthly financial statements give us a better basis for estimating federal and state income taxes. They also help us plan estimated tax payments and make tax-planning decisions before year-end.
Who We Work With
A CPA for Amazon sellers can become especially valuable as an eCommerce business grows and needs more from its accounting than simply recording transactions. We generally work well with established and growing businesses that have found a viable product or product line.
Many of our eCommerce clients have reached seven or eight figures in annual revenue, while others are still growing toward that level. Revenue alone doesn’t determine whether a business is a good fit. We work well with Amazon and Shopify sellers that carry inventory, have established products, and want reliable monthly financial statements and proactive income tax planning as the business grows.
If you are looking for a CPA for Amazon sellers, contact Schultz & Associates to schedule an introductory Zoom meeting and learn more about our eCommerce accounting and tax services.