Amazon Accounting for Sellers guide

Running a small business on Amazon can be a great way to generate income and continues to make consistent returns on capital for online traders.

Amazon accounting is a crucial area for sellers to understand and to maintain correctly.

Getting the accounting part right helps sellers maximise the financial health of their businesses on the Amazon platform.

As a retail giant and cloud computing provider Amazon has experienced amazing growth in both segments.

In our Amazon accounting guide we cover the various aspects related to Amazon’s retail and AWS business segments including revenue growth trends and costs of sales fluctuations.

We will also explore the importance of tracking fees for accurate accounting, such as sales commission structures, fulfilment by Amazon (FBA) seller fees breakdowns, storage fee considerations and advertising cost implications.

In addition to insights on amazon accounting practices we look at how automated solutions can help streamline bookkeeping tasks and how software integration can benefit your business operations.

We aim to help small businesses better position themselves for success within an increasingly competitive marketplace by closely monitoring revenue growth and managing operating expenses effectively.

Amazon’s retail and AWS business segments

Understanding the nuances of both Amazon’s retail and AWS business segments is essential for small business owners selling on Amazon.

This section will explore the distinct income statements and free cash flow calculations for these two separate businesses.

Costs of sales fluctuations over time:

In order to maintain profitability within each segment it’s crucial for UK Amazon sellers to monitor costs associated with sales closely.

Operating expenses such as fulfilment centre operations or marketing campaigns can significantly impact net profit margins if not managed effectively.

Additionally inventory management plays a vital role when accounting for costs related to maintaining adequate stock levels without tying up too much capital.

Typically the three main costs for an Amazon Seller are:

• Sales commission: As an Amazon seller central account holder selling products through their platform, you are required to pay commission fees that vary depending on category type.
• Fulfilment by Amazon (FBA) seller fees: If you are an Amazon FBA seller, additional fees such as storage, packing, and shipping costs will be incurred.
• Advertising costs: Many sellers choose to invest in advertising campaigns through Amazon’s platform to increase product visibility and drive sales. These expenses should also be accounted for when calculating overall profitability.

Amazon Sales Commission Structure:

As an Amazon seller you must pay a referral fee for every item sold through the platform that may range from 6% to 45% depending on the product category.

The referral fee varies depending on the product category and typically ranges from 6% to 45%.

To ensure proper tracking of these expenses in your Amazon seller central account it’s essential to stay updated with any changes in commission rates.

Amazon seller fees:

To maintain accurate accounting records, Amazon sellers in the UK need to track several fees such as sales commission, fulfillment by Amazon (FBA) seller fees, storage fees and advertising costs.

Understanding each fee type is crucial for effective financial management for businesses using the Amazon platform.

Fulfilment by Amazon (FBA) seller fees breakdown:

Fulfilment by Amazon (FBA) allows sellers to store their products at Amazon’s fulfilment centres while also taking care of shipping and customer service.

However this convenience comes with additional costs that include order handling fees, pick & pack fees, and weight handling charges per unit shipped out of an FBA warehouse.

These factors can significantly impact your overall profit margins if not accounted for correctly.

Amazon storage fee considerations:

• Monthly Inventory Storage: As an FBA seller or third party merchant using Amazon’s warehouses for storage purposes only you will be charged based on the volume occupied by your inventory every month.
• Long term Storage: If items remain unsold after six months or more Amazon imposes long term storage fees on a per-unit basis. These charges can add up quickly and should be monitored closely to avoid unnecessary expenses.

Inventory management and planning are critical for Amazon FBA and third party sellers. By keeping track of your inventory levels and forecasting demand, you can avoid stockouts and overstocking which can negatively impact your cash flow and profitability.

Amazon advertising cost for sellers:

Investing in Amazon Advertising is an effective way to increase product visibility and sales.

However it’s crucial to track your advertising costs accurately as they directly impact your net profit margins.

Knowing the different ad campaigns and their costs is essential for making wise decisions when it comes to allocating marketing resources to achieve the all important maximum ROI.

Accounting for Amazon sales and expenses

To effectively track your Amazon sales and expenses you should consider using an automated solution that integrates directly with your Amazon seller central account.

These tools can help you manage commissions, FBA fees, storage costs, advertising expenses, taxes, and more in a streamlined manner.

By leveraging automated Amazon accounting solutions you can significantly improve your bookkeeping efficiency while maintaining HMRC compliant records.

Automated accounting solutions for Amazon sellers

Utilizing automated accounting systems can save time while reducing human error often associated with manual bookkeeping processes.

Many popular online bookkeeping solutions among Amazon seller integrate seamlessly with your current accounting software and have been designed specifically for small to medium sized enterprises (SMEs).

Benefits of using automated accounting software:

• Ease of use: With seamless integration both Amazon seller central account holders and your accountant can easily navigate through the system.
• Data accuracy: By automatically importing sales data from your Amazon business you eliminate the risk of errors that may occur during manual entry.
• Affiliate payments tracking: The software also tracks affiliate payments to ensure accurate income reporting in your financial statements.
• Cash flow management: Real time updates on accounts receivable and payable help maintain an up to date cash flow forecast, allowing you to make the right decisions about inventory planning and operating expenses.

In addition to these specialised tools, general purpose cloud accounting software providers can also be customised to meet the needs of Amazon sellers.

These platforms offer robust features such as income statement generation, net profit calculations, and financial health monitoring that are essential for small business owners operating in the competitive e-commerce landscape.

What accounting software is best for Amazon sellers?

Automated accounting solutions for sellers provide a great opportunity to streamline their bookkeeping processes and save time.

The best accounting software for Amazon sellers depends on your specific needs and preferences  with some providers catering specifically to retail businesses like Amazon FBA sellers.

Another factor is if you currently use accountancy software that you are happy with but it doesn’t have the Amazon reporting tools you want.

Some key areas to look for in your accounting software search include:

• If you already use accounting software does it have integration capabilities with an ecommerce bookkeeping solution?

If it does you can integrate a bookkeeping solution which will report everything you need from your Amazon seller account into your current accountancy software.

This option means you don’t need to change what’s already working for you and it can be used for reporting from other ecommerce outlets other than Amazon.

• If you already use accounting software does it offer features such as:

Automatic importation of transaction data from third-party sellers’ platforms, accrual accounting capabilities for more accurate balance sheets, and inventory management integrations with Google drive or other storage solutions providers?

If it doesn’t and you don’t want to use a bookkeeping integration package it may be worth looking for a different software provider.

Do Amazon sellers have to be VAT registered?

In the United Kingdom (UK) VAT registration is normally required if your annual turnover exceeds the threshold (£85k as of 2023).

Additionally if you are an overseas businesses selling goods in the UK through online marketplaces like Amazon, you must also comply with local tax regulations.

Making tax digital and your Amazon business

Making tax digital applies to Amazon sellers who have an income of more than £50,000 from April 6 April 2026.

This means that HMRC expects you to report to them more often than before and keep records digitally.

To avoid MTD penalties HMRC it’s important to be meet deadlines, maintain compliant records and use compatible tax software.

Our making tax digitial guide gives you more details on what HMRC requires from Amazon sellers under their MTD regime.

What financial metrics should I monitor as an Amazon seller?

The key financial metrics to monitor include:

• Revenue growth rate.
• Profit margin.
• Inventory turnover ratio.
• Return on investment (ROI).
• Customer acquisition cost (CAC).
• Average order value (AOV).
• Cash conversion cycle.
• Operating expense ratio.
• Net promoter score (NPS).
• Lifetime value (LTV).

How can I optimise my cash flow when selling on Amazon?

To optimize cash flow, focus on accurate forecasting, inventory management, reducing storage fees, and monitoring advertising expenses.

Cash flow forecasting is a crucial aspect of financial planning, as it allows you to anticipate potential cash shortages or surpluses within your Amazon business.

By regularly monitoring and updating these forecasts, you can make informed decisions about inventory management, operating expenses, and growth opportunities.

Having an accurate cash flow forecast can also help small business owners secure loans or investments by demonstrating their company’s financial health.

Should I use an Accountant for my Amazon business?

While automated accounting solutions can significantly improve the efficiency of your Amazon seller business using an accountant can add extra value in a variety of ways.

Using an accountant can bring all of the important financial components together to the make the most of them.

When you have the automations in place an accountant will then help you make sense of all the figures so you can make informed business tax decisions to ensure the long term profitability of your business.

Proper accounting practices involve more than just tracking fees and submitting your tax return.

A good accountant will cover essential business components like:

• Which accounting basis to use for example accrual or cash based accounting.
• Keeping your business HMRC compliant.
• Balance sheets.
• Income statements.
• Accounts receivable.
• Accounts payable.
• Cash flow forecasts.
• Payroll.
• VAT.
• Accounting software integration and training.

In house vs third party accountants comparison

You have two main options: hiring an in house accountant or outsourcing to an accountancy service provider with both having different advantages and disadvantages.

In house accountant: An in house accountant works exclusively for your company and has a deep understanding of its unique needs.

They handle tasks such as balance sheet preparation, income statement analysis, accounts receivable tracking, and accounts payable management on a daily basis.

Employing an in house expert may be costly for some businesses due to salary requirements and overhead costs.

Third party service provider: Outsourcing accounting services offers several benefits, including cost savings, flexibility, and access to a team of professionals with diverse expertise.

Third party providers can assist you with various tasks such as accrual accounting, inventory planning, affiliate payments tracking and net profit calculations.

When searching it’s essential to choose a reputable provider ideally experienced in handling Amazon seller bookkeeping for the best results.

By combining automated accounting software solutions, cash flow forecasting and professional accountants’ services you can ensure your Amazon business remains financially stable while you work on maximising growth opportunities on Amazon.

Revenue growth trends in AWS and Amazon retail divisions

The revenue generated by Amazon Web Services (AWS) their popular cloud computing platform has been steadily increasing over the years due to growing demand for scalable infrastructure solutions.

In contrast Amazon’s retail division is facing stiff competition from other e-commerce platforms which has led to a decline in its core gross margin.

Despite the competition Amazon’s retail division is still an integral part of their plan as they strive to widen their selection and enhance customer satisfaction.

The consistently growing demand for products being sold online especially on platforms like Amazon is great news for new and existing Amazon sellers and we wish you happy trading and profitability.