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From E-commerce stores to weekend pop-up shops, it is essential for any successful business to keep adequate books. If you’re tired of using a napkin, a legal pad or even a basic spreadsheet to understand business and want to use a streamlined method to keep track of your expenses and profits, accountants around the world recommend Quickbooks Online. One of the best features is the ability to create a journal entry with ease and to link your entries with the matching bank transaction; this makes it easy for anyone to properly maintain their books. Here are some simple instructions on how to create a journal entry for your Amazon or E-commerce business using a real client for example:

 

1.) Get the statement from seller central of Amazon
biweekly seller report

biweekly statement

monthly seller report

Monthly Statement

2.) Once you have set up your Quickbooks account, go to the “quick create” button at the top right of the web page

plus

3.) Under  “other section”, click on “Journal Entry”. Then a journal entry template will be brought down from the menu.

plus drop down journal entry template

4.) We, the employees at Seller Accountant, believe that it is easier to first learn from common mistakes

Before we get into the tricky parts of E-Commerce accounting and setting up your business’ books the correct way, lets looks at some common mistakes we often see when fixing client’s books:

  • You may think it would be wise or a quick “shortcut” to debit all of your expenses into one account (Cost of Goods Sold) and credit all of your revenue into the contra account (Sales of Product Income) from your monthly Amazon statement.

wrong

  • Another common error we find is that some companies just copy all the information from the settlement, but then debit Cost of Goods Sold so the journal entry balances out at the end. THIS DOES NOT WORK!

wrong 2

Saving 30 minutes of work seems like a good idea at first, but you’re actually adding hours, if not days, of work for yourself. In the future, when you need to reconcile your books or, even worse, properly file your sales tax for the year, you will either be forced to allocate your precious time redoing your books or having to spend up to thousands of dollars paying an outside party to fix them for you–instead of reinvesting that money in your business.

5.) Before you can start the journal entry, it is important to know two things:

how each account is affected (whether it is either increased or decreased) and the ability to understand the foundation of your books/ what type of accounts are best for you

i.) This simple chart gives an easy to key to follow if you are trying to decide to either “debit” or “credit” the account:

chart

  • Rule of Thumb for Amazon Sellers:
    • negative accounts will be debited (besides bank transfers into your account)
    • positive accounts will be credited

ii.) When setting up your books, it is important to understand your company’s history, current behavior, and its future expectations. For instance, each business owner needs to assess how many different FBA fee or inventory accounts that are needed within their QBO. In the illustration, we are showing a fairly low-volume account; typically, owners with a small business model want their chart of accounts to be as simple as possible.  On the other hand, we’ve seen other sellers want a different FBA fee account for different categories of product. The trick is to figure out what level of granularity gives you the best ability to understand your expenses. Once you understand your company’s accounts, then you will be able to make the best business decisions. An example of this would be that this shown seller has chosen not to have inventory reimbursements as a separate contra account but instead just decreases his COGS. This is an unusual practice and we generally don’t recommend doing it this way ultimately the business owner has a lot of latitudes. For more help on how to set up the proper chart of accounts for your Amazon business feel free to contact us at Seller Accountant for a free consultation.

6.) Now it is time to insert your numbers from the sales report into your journal entry!

Make sure you properly label and date the entry so it can be easily accessible in the future. Once you have entered your numbers, it should look something like this:

correct

*Promotional rebates: If your company offered any promotional discounts or sales

*Cost of Goods Sold:Shipping: When you sell an item, Amazon automatically charges the buyer for shipping and credits that amount on to you. This credit is added to the amount deposited into your account.

*Cost of Goods Sold:Purchases: Occasionally, Amazon will accidentally lose or mishandle your product so they will fully reimburse you underneath “Other transactions” instead of Products sold. This entry mainly depends on how your books are set up.

7.) But wait? What is this “Amazon Settlement” account? Why won’t Amazon give me my money?!

No worries, it is Amazon’s version of an Accounts Receivable account. Instead of giving your earned money right away, Amazon holds your profits in the Settlement account; if you did not sell enough of your product during a selling period, the account will cover the rest of your incurred expenses. The beginning Settlement balance at the top of the statement and the ending balance at the bottom in red.

  • However, the red number is NOT used for your journal entry. One must find the increase in the account and debit it to the Settlement account (Accounts Receivable= Asset Account)
  • If Amazon uses the Settlement account to pay for the expenses, then you credit the account. It’s that Simple!

 

8.) Once you have added the journal entry, go back to the “Banking” section in Quickbooks. Now the money Amazon deposited into your bank account will match with the bank entry.

match

9.) Next, just click on the entry and then click “match”.

match 2

And that’s it! You have successfully created your first journal entry and have taken the first steps to properly growing your E-commerce Business!