Top Amazon Seller Bookkeeping Mistakes That Are Eating Into Your Profits
Many Amazon sellers (especially those who are just starting out) are prone to making bookkeeping errors that lead to significant problems. Mistakes like overlooking tax deadlines or misclassifying expenses are the most common ones that can cost you time and money.
That’s why it’s important to stay organized and maintain accurate financial records to avoid penalties or missed deductions. This article highlights the top bookkeeping pitfalls Amazon sellers encounter and offers strategies to avoid them.
With the right practices in place, you can focus on growing your business and improving its financial health.
Common Bookkeeping Mistakes Amazon Sellers Make
Amazon sellers often face unique challenges in managing their finances, leading to frequent bookkeeping errors.
Many sellers, particularly those without a background in accounting, can overlook key details that affect their financial accuracy.
Understanding the most common mistakes can help sellers maintain better control of their business operations and avoid issues that could hurt profitability and tax compliance.
1. Misclassifying Business Expenses
One of the most common mistakes Amazon sellers make is misclassifying business expenses, particularly when it comes to inventory. Many sellers incorrectly record inventory purchases as business expenses, which isn’t accurate.
Inventory is considered a capital investment and cannot be deducted until it’s sold. Sellers should ensure that inventory is treated as an asset and only deduct the cost of goods sold (COGS) when sales occur.
Proper classification is essential for accurate tax reporting and financial statements.
2. Ignoring Inventory Tracking Issues
Inventory management is critical for Amazon sellers, and failing to track inventory properly can lead to inaccurate profit calculations or stock issues.
Sellers often struggle with inventory tracking when selling on multiple platforms, which increases the complexity.
Implementing inventory management software that syncs with your sales channels helps maintain accurate records, prevent stockouts, and ensure precise COGS calculations.
3. Overlooking Sales Tax Obligations
Sales tax compliance is a complex area, especially for online sellers. Amazon may handle tax collection and remittance in certain states, but sellers must stay informed about their responsibilities in other regions.
For multi-channel sellers, tracking and filing taxes for each state where economic nexus laws apply is crucial. Sales tax automation tools can simplify the process and ensure compliance across jurisdictions.
4. Failing to Reconcile Bank Statements
Many sellers make the mistake of not reconciling their bank statements regularly, relying on Amazon’s net deposit amounts without reviewing individual transactions. This can lead to unrecognized fees, refunds, or adjustments, resulting in inaccurate financial reports.
Regular bank reconciliations help ensure that every fee, adjustment, and refund is accurately recorded, maintaining a clear financial picture and preventing discrepancies.
5. Incorrectly Recording Cost of Goods Sold (COGS)
Calculating the cost of goods sold can be tricky for Amazon sellers, as it involves factoring in both direct and indirect costs. Many sellers mistakenly include expenses like shipping and packaging in their COGS, leading to incorrect profit calculations.
To avoid this, sellers should accurately track the costs directly related to producing or purchasing inventory and separate them from other operational expenses.
6. Neglecting to Separate Business and Personal Expenses
Failing to keep business and personal finances separate is a common error that complicates bookkeeping and tax filings.
Sellers should maintain distinct bank accounts and credit cards for business use, which simplifies tracking business expenses, minimizes errors, and prevents confusion during tax season.
This also helps if an audit occurs, as it provides a clear distinction between personal and business transactions.
7. Not Keeping Accurate Records for Returns and Refunds
Returns and refunds are a regular part of selling on Amazon, but many sellers neglect to record these transactions properly. Failing to adjust for returns leads to overreported revenue, which can impact profit margins and tax obligations.
Keeping accurate, up-to-date records for returns and refunds ensures a more accurate picture of your revenue and expenses, helping with tax filings and financial planning.
8. Underestimating the Importance of Regular Bookkeeping Reviews
Many sellers procrastinate on bookkeeping tasks, resulting in missed deductions and inaccurate financial records. Regularly reviewing financial reports, reconciling bank statements, and checking transaction accuracy prevents issues from accumulating over time.
Scheduling monthly or quarterly reviews helps identify and correct discrepancies early, ensuring accurate financial statements and tax returns. Regular reviews also provide better insights into cash flow and profitability.
Practical Tips on Avoiding Bookkeeping Mistakes As An Amazon Seller
As complicated as Amazon seller bookkeeping is, you can make your life a little bit easier by implementing these practical tips to avoid making costly mistakes.
Use Accounting Software, Not Spreadsheets
Relying on spreadsheets for bookkeeping may seem cost-effective, but as your business grows, it becomes impractical. Manual entry increases the likelihood of errors, which can lead to financial mismanagement.
Cloud-based accounting software like QuickBooks automates most of these processes. Automation saves time, reduces errors, and ensures all transactions are accurately recorded and easily accessible from anywhere.
It also allows integration with Amazon-specific apps, making it easier to track sales, fees, and taxes efficiently.
Separate Personal and Business Accounts
Many Amazon sellers make the mistake of mixing personal and business finances. This leads to confusion, especially when tracking business expenses or preparing tax returns.
Opening a separate business account simplifies bookkeeping, gives a clearer picture of your business’s financial health, and makes it easier to generate accurate financial reports. It also ensures you’re fully prepared in case of an audit.
Account for All Amazon Fees
Amazon deducts various fees from your payouts, including referral, fulfillment, and storage fees. Many sellers overlook these fees when recording income, leading to an inflated sense of profitability.
Make sure to accurately track these fees to get a realistic view of your profit margins.
Avoid Relying Solely on Settlement Statements
Amazon’s settlement statements don’t provide a full picture of your sales and expenses. They often lack detailed information about fees, refunds, or sales tax. Depending on these statements alone can cause discrepancies in your bookkeeping.
It’s essential to use additional reports or tools that offer a more complete financial overview, like integrating Amazon with a bookkeeping platform that summarizes all transactions.
Regularly Review Financial Reports
Consistently reviewing your profit and loss statements, cash flow, and balance sheets is vital. Many sellers neglect this step, leading to missed opportunities or unnoticed financial problems.
Reviewing reports helps you track your business’s performance, identify trends, and make informed decisions. Ideally, you should conduct these reviews monthly to stay on top of any potential issues.
Get Started Today With CapForge’s Bookkeeping & Tax Services
Take control of your business finances with CapForge. Our expert team makes managing your payroll simple so you can focus on what really matters—growing your business.
Partner with us today and discover the peace of mind that comes from knowing your financials are in good hands.
Send an email to info@capforge.com or contact us at 1-858-633-3573 to get started. Additionally, you can fill out the form below and we’ll be happy to attend to your needs!
FAQ About Amazon Seller Bookkeeping Mistakes
What happens if I misclassify transactions?
Misclassifying transactions can lead to incorrect financial statements and tax filings. For example, mixing personal expenses with business ones or mislabeling business expenses can result in overstating or understating deductions.
How important is sales tax compliance?
Sales tax laws vary by state, and Amazon sellers are required to collect and remit sales tax in certain locations. Failing to comply can result in penalties, audits, and back payments, which can be costly and time-consuming.
How can I prevent these mistakes?
Hiring a professional bookkeeping service like CapForge helps prevent common errors. CapForge specializes in bookkeeping for Amazon sellers, ensuring proper classification of transactions, accurate inventory tracking, and sales tax compliance.
