According to the Smart Sellers Academy team of seasoned professionals, As an Amazon FBA seller, managing and reconciling transactions is one of the most important financial tasks you’ll undertake. Amazon provides a complex stream of sales, refunds, fees, and payouts that can make it challenging to integrate into your own accounting systems. Failing to manage these transactions efficiently can lead to accounting errors, tax issues, and an inability to accurately track your profits and losses.

This article will guide you through the essential steps to manage and reconcile Amazon transactions with your accounting systems, ensuring that your financial records stay organized and accurate.

1. Understanding Amazon’s Payout Process

Amazon FBA sellers are paid in two-week cycles. During this time, Amazon deducts its fees, including referral fees, fulfillment fees, and any other applicable charges, from your sales revenue before issuing a payout. Amazon does not immediately transfer all the money from sales to your bank account; rather, they hold it for processing, which includes handling refunds and returns.

To manage these payouts effectively, you must understand how Amazon calculates your disbursements. Typically, your Amazon settlement report will include:

• Gross sales revenue
• Refunds and returns
• Amazon fees (fulfillment, referral, storage, etc.)
• Advertising fees (if you run PPC campaigns)
• Other charges (like long-term storage fees)

The net amount after deducting all fees is what Amazon transfers to your bank account.

2. Set Up a Dedicated Accounting System

Before diving into reconciling Amazon transactions, it’s critical to set up an accounting system that can handle the complexity of your Amazon FBA business. Popular accounting software like copyright, Xero, or specialized Amazon FBA tools like A2X can help you track and manage transactions.

When setting up your accounting system:

• Create specific accounts for sales, refunds, Amazon fees, inventory costs, shipping, and marketing expenses. This will allow you to categorize transactions and ensure everything is properly recorded.
• Set up a cash flow projection system: Knowing when your payouts are due and how much you can expect will help you forecast your cash flow and manage your operating expenses more effectively.

Accounting software should be able to:

• Import bank statements to track incoming Amazon payouts
• Integrate with Amazon Seller Central to pull transactional data
• Generate profit and loss (P&L) statements, balance sheets, and cash flow reports

By automating as much of this process as possible, you’ll save time and avoid common errors.

3. Automate the Process with Accounting Tools

Manually entering every Amazon transaction into your accounting system can be overwhelming and prone to error, especially when handling thousands of transactions per month. This is where accounting automation tools come in handy.

Tools like A2X automatically integrate with Amazon Seller Central, import your Amazon sales, fees, and payout data, and reconcile it with your accounting software. A2X automatically breaks down Amazon transactions into:

• Sales
• Fees
• Refunds
• Payouts

This eliminates the need for manual entry and ensures that every dollar is accounted for. The system organizes Amazon deposits into corresponding revenue and expense categories, making the reconciliation process smooth and accurate.

4. Break Down Amazon Settlement Reports

Amazon’s settlement reports contain detailed information on each payout, including all transactions that occurred within the two-week period. It’s crucial to review and break down these reports to understand how Amazon arrived at the final payout amount.

Settlement reports include:

• Sales for each order: The total price paid by the customer.
• Fees deducted by Amazon: Including referral fees, fulfillment fees, and other charges.
• Refunds or returns: Any amount refunded to customers due to product returns or other reasons.
• Adjustments: Such as discounts, reimbursements for lost or damaged inventory, or promotional rebates.
• Promotions: If you offered any discounts or special deals, they would also appear in this report.

To reconcile the transactions, download the settlement report from Amazon Seller Central and match the sales, fees, and refunds with the payouts you received in your bank account. This ensures that all incoming and outgoing payments are recorded accurately in your accounting system.

5. Reconcile Bank Statements with Amazon Payouts

Once you’ve categorized all the sales and expenses in your accounting software, the next step is to reconcile Amazon payouts with your bank statements. The goal here is to match the amounts Amazon deposits into your bank account with the corresponding sales data in your accounting software.

Steps for reconciling payouts:

1. Download your bank statements for the payout period.
2. Compare the payout amounts on your copyright with the settlement report from Amazon.
3. Ensure that the net amount transferred by Amazon matches the total shown in your accounting system.
4. Adjust for any discrepancies: Sometimes there may be minor discrepancies due to the timing of transactions or small fees that didn’t initially get recorded. Review these differences carefully and make any necessary adjustments in your accounting records.

This reconciliation ensures that your accounting system accurately reflects the cash flow from Amazon, allowing you to maintain correct financial statements.

6. Track Refunds and Returns Separately

Handling refunds and returns is a crucial part of Amazon FBA accounting. When a product is returned, Amazon issues a refund to the customer and adjusts your sales total accordingly. However, if you don't track these refunds separately, it can distort your revenue figures and lead to overestimating your profits.

To manage refunds and returns:

• Create a separate account in your accounting system to track returns and refunds.
• Regularly check Amazon reports for any refunds issued within the settlement period.
• Reconcile the refunded amounts with your bank account to ensure that both Amazon’s reports and your accounting system reflect the correct amounts.

7. Track Inventory Costs and Inventory Valuation

Inventory is one of the most significant expenses in an Amazon FBA business. Accurately tracking the cost of goods sold (COGS) is essential for understanding your profit margins and ensuring you don’t overpay in taxes. Every time you purchase inventory, you should record the cost in your accounting system.

Key practices for managing inventory costs:

• Record inventory purchases as expenses when they occur.
• Use the First-In, First-Out (FIFO) or Last-In, First-Out (LIFO) method to track inventory value, especially if you’re buying and selling different batches of products at different prices.
• Track your inventory turnover: Tools like InventoryLab or Amazon’s Seller Central reports can help track the velocity of your inventory sales and when you’ll need to reorder.
• Perform a monthly inventory reconciliation to ensure the recorded inventory value in your accounting system matches the actual stock levels in Amazon’s fulfillment centers.

8. Manage Amazon Seller Fees

Amazon charges sellers multiple fees, such as:

• Referral fees: A percentage of each sale (varies by product category).
• Fulfillment fees: For storage, packaging, and shipping via FBA.
• Storage fees: Long-term storage fees for items in Amazon’s warehouse.
• Advertising fees: If you run PPC campaigns on Amazon, these costs are deducted from your account.

All these fees should be categorized correctly in your accounting system. Most accounting software allows you to set up categories for Amazon referral fees, fulfillment fees, and advertising costs, so these expenses are automatically tracked.

When reconciling transactions, cross-reference the fees charged by Amazon in your settlement reports with the amounts deducted from your bank account. If there are any discrepancies, it’s essential to investigate them right away.

9. Handle Multi-Currency Transactions

If you’re selling internationally, you’ll need to account for currency conversions. Amazon automatically converts payments from foreign sales into your local currency, but exchange rates and conversion fees can affect your payout.

To manage multi-currency transactions:

• Use accounting software that supports multi-currency tracking.
• Track the exchange rate at the time of each transaction and any fees associated with currency conversion.
• Reconcile multi-currency payouts by ensuring that the converted amount matches what Amazon deposited into your bank account.

10. Keep Records for Tax Purposes

Accurate and organized records of your transactions are essential when it comes time to file taxes. You’ll need to ensure that all your income, expenses, inventory costs, and fees are recorded and categorized correctly. Additionally, any sales tax collected from customers needs to be properly tracked and reported.

Key tax-related accounting practices:

• Keep a detailed ledger of all transactions, including sales, refunds, and expenses.
• Track and record sales tax liabilities: Depending on where your inventory is stored, you may have to collect and remit sales tax in multiple states.
• Maintain clear records of all deductible expenses, such as shipping costs, marketing expenses, and inventory purchases.

Working with a tax professional familiar with eCommerce businesses can also ensure that your tax filings are accurate and compliant.

Conclusion

Effectively managing and reconciling Amazon FBA transactions with your accounting system is crucial for maintaining financial clarity and avoiding costly mistakes. By implementing the right accounting software, automating processes, and closely monitoring payouts, fees, and refunds, you can ensure your business runs smoothly and stays compliant with tax and financial regulations.

Investing time and resources in setting up proper accounting practices will not only save you time but also provide you with the financial insights you need to grow your Amazon FBA business successfully.