Step-by-Step Guide to Reconciling Amazon Seller Payments
One of the biggest challenges in working with Amazon Seller Central is getting a true understanding of your costs of doing business on that platform. Many business owners simply book this deposit to Sales in their accounting system. Those who know that is wrong, or realize they need more information to manage their business, attempt to reconcile this manually and give up because they don’t understand “how” to properly record the entry.
This post is designed to help business owners fully understand how to reconcile Amazon Settlement reports so their Income Statement will provide a true picture of where their money is going and the actual costs of doing business on that platform.
Amazon Settlement Deposits and Reports
About every two weeks, Amazon pays their sellers for their sales. These payments are net, which means your revenue is more than what you’ll receive as a deposit. Your revenue has been reduced by any or all of the following:
Rebates
Refunds
Amazon sales commission
FBA fees
Shipping fees
Advertising fees
Monthly subscription fees
Sales tax
Sales tax facilitator fees
Unavailable balances
You’ll find out how your revenue has been adjusted by Amazon by viewing the Settlement Report which can be obtained from the seller site and then going to Reports > Payments.
Here is an example of a report where you can see the $5,804.68 [tick mark (J)] deposit is the result of $8,705.09 [tick mark (A)] in sales and the deductions made by Amazon. A little confusing, right? We’ve added lettered, red tick marks to tag each number so you can see where they go later on.
Reconciling an Amazon Settlement Deposit
1. Settlement Deposit Received
Once you’ve received the deposit in your bank, you can start the process of reconciling but most business owners have their bank accounts feeding into their accounting system and start the process when the deposit appears in their feed. This is what it looks like in the Xero bank feed.
2. Obtain the Amazon Settlement Report
Log onto your Amazon Seller Central dashboard and navigate to Reports > Payment.
Select the report for the proper Settlement amount you are going to reconcile.c
Print the statement as a PDF.
3. Gross Up the Settlement Net Deposit
Note: You’ll need to have added all of the accounts in your accounting system’s Chart of Accounts for this to work. If you are missing an account during this step you’ll need to back out of where you are, add the account and start this step again.
a) Find the deposit in Xero and drill into it by clicking Add Details.
b) Looking at your Settlement Report, start entering the accounts and amounts. Make sure your total at the end nets to the deposit amount. The goal here is to add your revenue amounts and the related costs so the combined total nets to the deposit amount. These screenshots can act as a guide.
c) Click Save Transaction.
4. Viewing the Results on your Income Statement
Now that you’ve broken out all of the income and costs in your accounting system, your Income Statement will be a lot more useful. We’ll view the Income Statement in Xero your work will translate through any accounting system you use, including QuickBooks Online.
a) To view your Income Statement, in Xero, select Accounting > Reports > under the “Financial” section, select Income Statement. We’ll be using the “New” Income Statement report if you see two listed.
For now, select This Month as the “Date Range” assuming the deposit you just reconciled is in this month. If not, select the month of the deposit you reconcile so you can see the results. Select Update.
(Note: If your Income Statement isn’t organized like our example, you may not have set up your Chart of Accounts right or your report Layout.)
b) Your Income Statement should now show your deposit amount in Sales (your sales may be higher if other transactions have been coded to Sales) and you should see the other accounts you used to record fees, refunds, etc from your Settlement Report.
Here is an example of an Income Statement in Xero with our tick marks showing you where the Amazon numbers will show up on your financials. It won’t always look this easy when you are running a business and have lots of deposits and expenses going on. This is simply showing what this one entry would look like.
Some of those accounts should be in Revenue (e.g. refunds), some should be in Operating Expenses (e.g. Advertising Fees). Your accountant can help make sure your Chart of Accounts properly reflects certain expenses as Contra Revenue, Cost of Goods Sold, or Operating Expenses.
What wasn’t that hard, right? Hopefully you feel more comfortable with the process and why you should be recording the detailed amounts in your accounting system to better manage your business. You should do this for any sales channel you sell on.
Although you are now “able” to record these entries, the question is should you? You’re a business owner not your accountant. Additionally, you’ve learned the manual way to do this. What if there was a system that can automate this process for you; freeing up your time and reducing the chance of error?
Well there is, it’s called A2X!
Scale By Automating Manual Processes
We work to automate any process we can for our customers’ accounting workflow. Why? To reduce error and to establish a scalable solution. eCommerce companies must be built to scale or things will get out of control quickly!
A2X has automated the Amazon settlement process. A2X loads an entry in your accounting application that matches the net deposit you receive and breaks out the payment into its components just like we described above. The best part is the entry can be set to automatically.
Once you’ve configured your account mapping in A2X (remember the accounts you used in the steps above), A2X will allocate all of Amazon’s fees accordingly.
After that, you’ll be able to monitor the reconciliation progress for all Amazon Settlements in the A2X dashboard.
Once A2X has done it’s thing, this is what you’ll see in your accounting system. That’s it. Simple and automated.
Next Steps
Hopefully you’ve found this step-by-step guide useful and not understand exactly what Amazon is doing with your settlement deposits, how to record them in your accounting system, and that you can automate this process using A2X.
If you need help implementing A2X or modernizing your accounting tech stack and financial reporting we’re here to help.
