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CONNECTED ACCOUNTING

Best Accounting Practices for Amazon Seller + Xero

Jul 30, 2019

Best Accounting Practices for Amazon Seller + Xero

Overview

You’ve finally decided what products to sell and now you’ve joined the millions of third party sellers on the Amazon Marketplace. Worldwide you are generating more than 50% of Amazon’s total sales! But how much does it cost you to sell on Amazon? It’s imperative that you leverage the most advanced technology and best accounting practices to save time and money. Tracking your product sales and costs per sale can give you clear insight into your revenue and actual operating costs. But most selling platforms have hidden fees that are "netted out" from your product sales. Those are operating costs that need to be on your books.

There are just a few concepts to master in order to maintain your Amazon Seller accounting like a pro with Xero. To make it as easy and accurate as possible, we've spent years perfecting our Amazon Seller integration for you. The following best practices will help you get setup with Amazon Seller Central, Greenback, and Xero.

Let's clarify what we know. The most important thing to remember is that Amazon Seller holds funds on your behalf. You already understand that when you sell an item (with Amazon Seller Payments), Amazon Seller will take payment from the customer, then deposit the funds to a holding account on your behalf. This is your balance of funds. Amazon Seller will then transfer these funds to your actual bank account on a periodic basis.

You also know that Amazon withdraws funds from your payout balance (ie: Amazon Seller funds) to pay for various expenses such as referral fees, refunds, and some bill payments. Thus, (and this is key!) the transfers Amazon will periodically make to your actual bank account will not reflect all the credits and/or debits behind the scenes. That's where Greenback provides outstanding support. Our platform will sync and generate (if necessary) all the transactions that affect your Amazon Seller balance. And our platform also helps get all of them into Xero as sales and expenses.

Here are the best practices we are going to go over. Make sure that you’ve already signed up for a Greenback account, then connect Xero, and your Amazon Seller Central account. You’re going to customize your Chart of Accounts by creating an informal Amazon Seller Bank Account, and an Expense Account. Then you’ll teach Greenback the mappings by exporting a sale, an expense, and a refund.

IMPORTANT: Per Amazon, only sellers with a Pro Seller subscription and super-admin access may connect an app to their Amazon Marketplace or Amazon Handmade. On Greenback you can add collaborators, etc.

Fun Fact: For eligible sellers, Amazon will waive the current monthly Professional selling plan subscription fee of $39.99 until December 31, 2019. For the UK it's £25 and the 12% Promotional Referral fee is VAT exclusive.

Step 1: Connect Xero and Amazon Seller in Greenback

If you have not yet connected your Xero and Amazon Seller accounts in Greenback, you'll need to do that now. If you've already connected both, then skip ahead to the next step.

On the Greenback dashboard, click “Connect” in the left nav, click on Accounting, find “Xero", click "Connect", and then click Connect again. You'll be redirected to Xero where you can follow the steps to authorize Greenback to connect to your account eg: Allow Access. Once you've completed that, you'll be redirected back to Greenback where an initial sync will complete.

Next you are going to "Authorize New Developer" (e.g. Greenback) in order to securely connect to each of your Amazon Marketplaces. You'll use your merchant token (seller ID) and your auth token for each one. Here's an overview on how to do it using an Amazon.com U.S. marketplace as the example.

See the How to Sync Your Amazon Seller Central Data blog article which goes into more detail with a step by step. You'll connect your marketplace(s) by region/country. Greenback supports: North America: U.S., Canada, Mexico, Europe: Germany, United Kingdom, Italy, France, Spain, and Australia. You may add as many as you need to your Greenback account. Currently marketplaces must be in the English language only.

To finish connecting, just go to your Greenback dashboard and paste them in. Your initial sync will show your completed sales "orders", referral fees, monthly subscription, refunds, etc. if/when the data is available.

Pro-Tip: Free users have access to a limited amount of historical transactions on Greenback. Paid users can request a "Catch Me Up" support ticket to get more historical data synced to Greenback. View our Pricing Plans for more info.

Step 2: Add a Bank Account in Xero

Since Amazon maintains a balance of funds on their platform for your products/shop, they act like any other bank account for your business. As a best accounting practice, you'll want to create a new "bank" account in Xero to reflect the funds Amazon holds. When Amazon transfers funds to your actual bank account, you'll simply "transfer" those funds in Xero from your Amazon Seller "bank" account to your actual bank account.

Why? Rather than have a dedicated account in your Chart of Accounts for Amazon Seller as Undeposited Funds -- we recommend having a dedicated account that is a Bank -> Checking Account instead. The reasoning is two-fold: 1) you pay some expenses from it in our system (e.g. your Referral Fees, etc.) and 2) Xero allows some transactions, but not others based on the kind of account you create. Since you'll be paying expenses, issuing refunds, getting reimbursed referral fees, etc. all from this specific account, it acts more like a real bank account than simply a place undeposited funds are held.

Greenback will note where funds came from/went to on every transaction. So if you make the occasional bill payment from your credit card (most common) rather than your Amazon Seller Balance, you'll need to pick the right account in Xero. This is something we run thru during a training session, but the Greenback UI (user interface) does provide hints and selects defaults based on the account we know you paid from or deposited to.

On your Xero dashboard, you'll click on Accounting, (Advanced) Chart of Accounts, Add Bank Account. Next you’ll add a new account to your Chart of Accounts. To trick Xero into allowing you to manually add an account, search for a non-existent bank such as “Greenback.com” as the bank name, and click on the “add it anyway” link, since it is not a recognized bank. The new bank account name can be “Amazon Seller Funds”, the Account Type is “Other”, and the Account Number is “AMAZON”. Click Save. Make sure that the settlement currency of your bank account matches that of the payout being sent to it (i.e. a USD payout must be sent to a USD-denominated bank account).

Let's see how to set that up.

Step 3: Add an Expense Account in Xero

Most online marketplaces charge you various fees for doing business on their platform. (Amazon Seller has selling fees such as subscription, Referral, Variable Closing, etc.). For example, when you sell an item, Amazon Seller will charge (and auto-deduct) a referral fee, etc. To simplify accounting for these fees, Greenback recommends the best practice of also adding a new account to your Chart of Accounts with an "operating expense" account category to represent these Marketplace (Seller) Fees.

Pro-Tip: Amazon Handmade has a Per Item minimum referral fee but waives the subscription fee if you don't have the Pro subscription.

On your Xero dashboard, go to Accounting, (Advanced) Chart of Accounts, and then Add Account. The Account Type is "Expense", the Code is “601” (or something in the 600's), and the Name can be "Marketplace Fees" or something similar, then click Save.

As a best practice, Greenback recommends you treat subscription fees, transaction fees, and many other optional Amazon Seller fees as operating expenses and simply lump them together as Marketplace Fees. Some businesses will account for some of these as a "Cost of Goods Sold (COGS)" or "Cost of Sales (COS)", but most accounting professionals we surveyed recommended that they get treated as a standard operating expense.

Step 4: Add a Credit Card Account in Xero

Pro-Tip: When you register as a seller, you need to provide an internationally chargeable credit card in case you ever have a negative balance of funds. Amazon makes deposits to your bank account associated with your seller account when you have a positive balance but you can not have payout funds sent to your credit card or other payment systems.

Amazon requires you to periodically make bill payments for accrued charges such as subscription fees, pay-per-click fees if they weren’t already deducted, and more. What's a little tricky about these transactions is that your payment may come from your credit card, or your Amazon Seller balance depending on your payout balance. To accurately account for these payments, it's very important to know which method was used. For example, if you make a bill payment using your Amazon Seller funds, then you'll want to record an expense in Xero against the Amazon Seller bank account we setup in step 2. However, if you make bill payments in Amazon Seller with a credit card, then you'll want to record that expense in a different account in Xero -- one that represents your credit card. Greenback helps you by detecting the payment method and provides a hint in the Export Wizard. So let's create a new account in your Chart of Accounts if one doesn't exist yet.

In your Xero dashboard, you'll click on Accounting, (Advanced) Chart of Accounts. Next, click on "Add Bank Account" button. To trick Xero into allowing you to manually add a credit card account, search for a non-existent bank such as "Greenback.com". One won't be found, but click on "Add It Anyway". You will now manually create a new bank account named for your credit card. The Account Name is e.g. Visa 1234 or similar, the Account Type is "Credit Card". Then enter the last 4 digits of your card number in the Credit Card Number field. Click Save.

Pro Tip: If you happen to update your credit card on file for your Amazon Seller account, make sure to add it to Xero as well!

Step 5: Export a Sale to Xero

You are now ready to export your first Amazon Seller sale to Xero! Greenback learns the correct export settings and mappings as you do them. So you'll only need to export a few different types of transactions (e.g. sales receipt, referral fee, refund) and Greenback will begin to pick the right defaults every time.

On the Greenback dashboard or while your Amazon Seller account is selected on the left nav, choose a "Sales Receipt" transaction that represents an item you sold (immediate payment) on Amazon Seller. Click on the white "Export" button. Greenback will refresh your settings from Xero and search for possible matches/duplicate transactions (we are fanatical about protecting your books). Next click on "Create a New Sale" since the transaction doesn't exist in Xero yet and click "Next". When you select this option, Greenback will add a new transaction to Xero after the next 2 steps are completed.

For the "To" Field, since we haven't done any exports yet or Amazon Seller was not found as an existing contact, we'll leave the option for creating Amazon Seller as a new contact. We'll then select "Invoice + Payment" and the account Amazon Seller Funds we setup in Step 2. The line item account will be "Sales (Revenue)". Greenback detects when Amazon Seller has collected sales tax for you and includes it as a line item. (The Sales Tax under the Subtotal will appear as “0”). Click "Export" and you're finished.

Pro-Tip: Type of Invoice or Bank Transaction? If you are paying for a version of Xero with unlimited invoices then we highly suggest you use the Invoice type for your sales transactions. However, if you have a version of Xero with limited amounts of invoices per month, then the Bank Transaction is a great way to get around Xero's invoice limit.

Greenback created an invoice in Xero with the details of what you sold. Greenback also created a payment that covered the balance of the invoice and deposited it to your Amazon Seller Funds account in Xero.

To view it in Xero, go to Business (Accounts), Sales Overview, Invoices Paid. Then click on the transaction to view the text receipt.

Step 6: Export a Commission (Referral) Fee to Xero

There are Amazon selling fees like the Referral Fee (commission), and the Variable Closing Fee. There is usually no per item fee if you have the pro seller monthly subscription. As you know, other fees like shipping and gift wrap are paid for by the customer and not deducted from your sale (ie: the payout funds after it ships).

For fees that are not itemized on your monthly bill/statement, and typically deducted directly from your sale, Greenback creates an ancillary transaction. These transactions are unique to Greenback and the way we help get associated fees correctly on your books. While Amazon Seller simply deducts these out on their platform, Greenback creates a second transaction.

On your dashboard, choose the fee transaction, then click the white "Export" button. Next select "Create New Expense" and click "Next".

Since you've already exported a sale in Step 5, notice how Greenback defaulted to Amazon Seller as a contact, and pre-filled in the Type + Account (your method of payment hint) to the right one! Now you just need to select the correct Line Item account for this kind of expense. You'll want to pick the Marketplace Fees item we created in Step 3. Click Export.

Now let's take a look at your purchase in Xero. Go to Business (Accounts), Purchases Overview, Bills, Paid, and click on the transaction to view it. Greenback created a purchase in Xero with the details of what you expensed. Greenback also created a payment for the purchase and withdrew funds from your Amazon Seller Funds account in Xero to pay for it.

We can also see how it affects a couple of your reports. Go to Accounting, (Advanced) Chart of Accounts, and then see your Amazon Seller Funds and check out your debits and credits. Next go to Accounting, (Reports) Income Statement, and look at your Sales ie: Income and your Marketplace Fees.

Step 7: Export a Refund and a Reimbursement to Xero

If you sell enough on Amazon Seller, you'll eventually need to issue full or partial refunds. So let's go through an example of one to show you how it works. For every “refund” you issue on Amazon Seller, you'll be credited back some of the fees you originally paid. Thus, Greenback will create two transactions for every refund for you! One will represent the "negative" sale and the other will represent the "negative" expense or the reimbursement of your fees.

On your dashboard, choose a Refund transaction, then click the white "Export" button. Next select "Create New Refund" and click "Next". Greenback defaults to “Amazon Seller” as the Contact. The Type and Payment Account is “Amazon Seller Funds” (the “bank account” you created in Step 2. The Line Item Account is "Sales (Revenue)". Click Next.

Now choose the related ancillary Reimbursement transaction on your dashboard and click the white "Export" button. Next, select “Create New Reimbursement”, and click “Next”. Choose the Vendor ie: Amazon Seller. Select the Type and Account ie: “Amazon Seller Funds”. Select the Line Item account (Expense account) ie: Marketplace Fees (Expense). Then click Export. On the next screen, click Close.

Let's take a look at a couple of reports in Xero after these transactions. Go to Accounting and click on (Advanced) Chart of Accounts, then your Amazon Seller funds, YTD and compare your Debits and Credits to the lat time. Next go to Accounting, (Reports) Income Statement, and take a look at your Sales ie: “Income” and your Marketplace Fees.

Step 8: Export a Bill Payment

Amazon Seller Central will accrue charges for you as you sell and require you to make periodic bill payments or cover a negative balance in your shop funds. It's critical you pay attention to what you paid with when exporting these to Xero. Greenback will provide hints in our UI to indicate if you paid with a credit card or out of your Amazon Seller funds. Here's a demo of how to export a Bill Payment using Etsy as an example but it's the same way for Amazon Sellers.

In our example, we paid with a credit card and selected the account we setup in Step 4. Let's take a look at a couple reports in Xero after this transaction…

Since we paid with a credit card, you'll notice in our Chart of Accounts that the Amazon Seller Funds balance remains the same with $1.39, while the Visa 1234 account has a negative balance of $0.83.

If you have any fees not mentioned, for example, Amazon Marketing Services that you need to track, please contact us at ping@greenback.com. We may already have a solution that we are working on for sellers just like you!

Sync Frequency

Finalized Settlement Statements and Statements Older Than 90 Days

Amazon Seller Accounting

Reconciling Payouts and Transfers and Handling Deposits on Your Bank Feed

How to Customize Your Accounting Data Exports

If you've connected Xero you can set your preferences when exporting your data. Choose your time zone to match, make it easy to see your shop name, enable item SKU matching, and more. Set Your Preferences

Transforms by Greenback

Do you need powerful rule building and enhanced transaction data? Greenback can intelligently match specific transactions and transform them even by line item. The "if this, then that" recipes are endless. 

Transforms by Greenback

Still Need Help Setting Up Your Account?

Don't hesitate to reach out! Just send an email to: support@greenback.com. We are available to answer any additional questions you might have.

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