According to the Smart Sellers Academy team of seasoned professionals, Running an Amazon FBA (Fulfillment by Amazon) business generates a continuous flow of transactions, including sales, fees, refunds, and payouts. To ensure accurate financial management, it's essential to properly track and reconcile these transactions with your accounting system. Efficient financial tracking will help you understand the health of your business, manage cash flow, and remain compliant with tax obligations.

In this article, we’ll explore a step-by-step guide to managing and reconciling Amazon FBA transactions and payouts with your own accounting system.

1. Understanding Amazon's Payout Process

Amazon pays FBA sellers on a bi-weekly basis. However, the amount you receive in your bank account is the net payout, which is calculated after deducting several fees, refunds, and adjustments.

Here’s a breakdown of Amazon's payout process:

• Gross sales: The total revenue from customer orders.
• Amazon fees: These include referral fees, FBA fulfillment fees, long-term storage fees, and advertising charges.
• Refunds and returns: The value of any returned items or refunds to customers.
• Adjustments: Reimbursements or other small adjustments Amazon makes, such as lost or damaged inventory.

The key to reconciling these payouts is to understand that the amount deposited in your bank account is not your total sales revenue, but the net amount after all fees, refunds, and adjustments.

2. Setting Up Your Accounting System for Amazon FBA

To reconcile Amazon transactions efficiently, you’ll need an organized and integrated accounting system. Consider using cloud-based accounting tools such as copyright, Xero, or Amazon-specific solutions like A2X to automate transaction imports and categorization.

Key tips for setting up your accounting system:

• Create distinct accounts for sales, fees, refunds, and other categories to properly categorize each transaction.
• Use software that supports integration with Amazon Seller Central. This will allow you to automatically import settlement reports, sales data, and fees, making the reconciliation process smoother.
• Set up a system to track inventory costs and calculate Cost of Goods Sold (COGS). This will help you accurately monitor profitability.

3. Automating Transaction Imports

Manually recording Amazon transactions is time-consuming and prone to errors. Automation tools like A2X, Link My Books, and Fetcher streamline this process by automatically importing data from Amazon Seller Central and categorizing each transaction correctly.

A2X is particularly useful as it:

• Integrates with Amazon and popular accounting software.
• Breaks down payouts into categories such as sales, fees, and refunds.
• Ensures accuracy by matching Amazon settlement reports with the net payouts.

Using such tools eliminates the risk of human error and saves time, making your reconciliation process more efficient.

4. Reviewing Amazon Settlement Reports

Amazon provides settlement reports every two weeks, which contain a detailed breakdown of all transactions for that period. These reports are critical for reconciling payouts with your accounting records.

Key components of a settlement report:

• Sales revenue: The total value of items sold.
• Refunds and returns: Amounts refunded to customers during the period.
• Amazon fees: Including referral fees, fulfillment fees, storage fees, and advertising charges.
• Adjustments: Small adjustments like reimbursements or promotional credits.
• Net payout: The final amount Amazon transfers to your bank account after all deductions.

To manage these reports:

• Download and review the settlement reports regularly.
• Compare the gross sales to the amount recorded in your accounting software.
• Ensure that fees, refunds, and adjustments are correctly accounted for in your system.
• Reconcile the net payout with the actual amount received in your bank account.

5. Reconciling Amazon Payouts with Bank Statements

Once you’ve reviewed your settlement report, the next step is to reconcile it with your bank account. Reconciling ensures that the payout Amazon sends matches what is recorded in your accounting system, and it helps you detect any discrepancies.

Here’s how to reconcile payouts:

1. Download your copyright for the payout period.
2. Compare the net payout listed in the settlement report with the amount deposited in your bank account.
3. Ensure that the net payout amount in your accounting software matches the deposit in your copyright.
4. Investigate any differences that arise, which may be caused by timing differences, currency conversion (for international sellers), or small fee adjustments.
5. Make any necessary adjustments to your accounting records to align with the actual payout.

6. Managing Refunds and Returns

Refunds and returns can complicate your accounting, as they affect both your sales revenue and the fees you pay. Amazon deducts refunds from your future payouts, and managing these separately in your accounting system is important to avoid overstating income.

Best practices for managing refunds:

• Create a separate account for refunds in your accounting system to track them accurately.
• Regularly review the settlement report for refunds and match them with your accounting records.
• Ensure that any fees associated with refunds are also recorded in the correct account (Amazon may refund part of the fees).
• Adjust your gross sales to reflect the net sales after refunds.

By closely tracking refunds, you’ll get a clearer picture of your actual revenue and avoid discrepancies in your financial records.

7. Tracking Inventory Costs and COGS

Inventory management is a key aspect of any Amazon FBA business. Your accounting system should track inventory purchases and calculate Cost of Goods Sold (COGS) to ensure accurate profit margins.

Steps for tracking inventory costs:

• Record inventory purchases as expenses when they occur.
• Use an accounting method like FIFO (First In, First Out) or LIFO (Last In, First Out) to track how inventory is used and sold. This will help you calculate the COGS for each product.
• Reconcile inventory balances regularly to ensure they match the actual stock held in Amazon's fulfillment centers.
• Use software like InventoryLab or Amazon’s inventory reports to monitor stock levels, reorder points, and track profitability.

Accurately tracking inventory and COGS will give you better insight into your profit margins and help you make informed business decisions.

8. Managing Amazon Fees

Amazon charges sellers several fees, including referral fees, fulfillment fees, storage fees, and advertising costs. These fees are deducted from your payouts, so they must be tracked separately in your accounting system.

Tips for managing fees:

• Use Amazon’s settlement reports to identify all fees charged during the payout period.
• Create separate expense accounts in your accounting system for each type of fee to ensure they’re categorized correctly.
• Automate the import of fees into your accounting software using tools like A2X to reduce manual input and errors.

By tracking fees accurately, you’ll have a clearer understanding of your expenses and be able to analyze the profitability of your Amazon FBA business.

9. Handling Multi-Currency Transactions

If you sell internationally, you’ll likely deal with multi-currency transactions. Amazon converts foreign sales into your local currency and deposits the net payout into your bank account. However, currency conversion rates and fees may affect the final amount received.

To manage multi-currency transactions:

• Use accounting software that supports multi-currency tracking to record sales in different currencies.
• Record the exchange rate at the time of the payout to ensure accurate reconciliation.
• Account for any conversion fees charged by Amazon.

Tracking multi-currency sales properly ensures that your financial records are accurate and that currency fluctuations are accounted for.

10. Staying Compliant with Taxes

Tax compliance is essential for any Amazon FBA business. You need to keep accurate records of sales, expenses, and taxes collected for each region you sell in.

Key tax considerations:

• Sales tax: Depending on the location of your customers and your inventory, you may be responsible for collecting and remitting sales tax. Use tools like TaxJar or consult a tax professional to manage this.
• Income tax: Record all income, expenses, and deductions accurately to ensure compliance with federal and state income tax requirements.
• Work with an accountant to identify deductions you can claim, such as inventory costs, shipping fees, and advertising expenses.

Conclusion

Managing and reconciling Amazon FBA transactions with your accounting system is critical for maintaining accurate financial records, tracking profitability, and ensuring tax compliance. By using the right tools, automating the import of transactions, regularly reviewing settlement reports, and reconciling payouts with your bank statements, you’ll streamline your financial management and avoid discrepancies.

With these best practices in place, you can focus on growing your Amazon FBA business while maintaining clear financial visibility and control.