E-commerce businesses consider inventory as their most valuable asset and tracking your stocks effectively can make a huge difference. You can generally order new products when they’ve become unavailable, and you can make sure that you can fulfill your customers’ orders on time which can lead to greater satisfaction.
Some businesses are operating as private label brands while others are third-party sellers where someone else is handling the inventory on their behalf. When you’re able to write down everything, you can make sure that your financial records are accurate. With the proper inventory accounting, you avoid risking miscalculations, which can impact your tax obligations.
If you’re running an Amazon business, you can prevent losses by calculating everything correctly. When you receive the products, they’re considered inventory, and you can market them since they’re available for customers to purchase. After you sell them, they become cash assets and become profits that are generated for the business which is the goal.
Tracking your raw goods and assigning values to them each time you process them is going to give you a more precise figure. This is also going to apply to in-process and finished goods. They can undergo certain changes in value because there’s depreciation or a change in customer demand that you need to keep track of.
The Generally Accepted Accounting Principles often require business owners to follow a set of standards and avoid overstating their profits to avoid inflating their company valuations. Get a more accurate financial representation of your current business health with the help of an accountant for Amazon sellers and identify areas that can allow you to increase your profit margins.
Learning More about the Basics
You need to track the value of the goods that are available for sale and if you’re on the Amazon platform, you need to also record your purchase costs. You need to recognize the expenses that are often associated with warehouse storage as well as the logistics cost of fulfilling an order.
This way, you can determine which products are making the most money on your behalf, and you can focus on those. It’s also needed for calculating your taxes and to avoid getting penalized by the authorities.
The Cost of Goods Sold or COGS is also part of the accounting, and this includes the materials that were used to manufacture the product. Labor costs are also added, and shipping fees are calculated to avoid costly errors.
Common Inventory Accounting Methods
Various methods are often used and in the first in, first out model or FIFO, this assumes that the oldest products are often sold first to the customers. It’s used in many industries but especially in the baking industry. It can be pretty complex but the figures on the COGS will vary, and the professional accountants can generally help you with this.
Last In, First Out, or LIFO is also going to be used, and the old inventory is left at the end of the accounting period. However, with the LIFO, that might not be too accurate because the valuation of some of the items might be lower compared to the prices today. Most companies won’t also be able to leave their older stuff sitting idly, while they’re sending their newly-acquired products to customers, especially when it comes to food products.
With the weighted average cost, the yields are going to depend on the various allocation of inventory costs, and this is going to be under a perpetual inventory system. This can also be applied to periodic inventory where the ending count of cost of goods sold will be calculated by the combination of the beginning and inventory costs and the purchases done during this period.
What are the Challenges that are Being Experienced by Owners?
Each business is facing its own unique challenges, and this is specifically because of fluctuating demands. The fees can vary in Amazon especially in the fulfillment field and managing stocks across various centers are going to require extensive tracking in order to avoid discrepancies. With the right numbers, many are also avoiding unnecessary fees especially with the shipping.
You need a professional who can keep the books correctly so you can streamline your workflow. These accountants can integrate various applications into your shop, and you can streamline most of your work in the process. They’ll make it easy for you to stay organized, and they can give you the information that you need promptly.
Why Should You Be Compliant with Your Taxes?
Reporting the correct figures when filing your taxes will mean avoiding a lot of penalties and IRS audits down the road. The tax authorities often require Amazon businesses to record their taxable income which means listing purchases and other cost adjustments.
When there are discrepancies, it can spell trouble, and you might be paying more than what you should. The sellers should select an inventory valuation method that aligns with the kind of business they have and working with an accountant will make sure that they’re able to meet the reporting standards.
You also be able to deduct your expenses correctly and this is going to factor into your calculations to minimize your liabilities. Substantiate your financial statements with thorough records of your business activities, and make sure that you avoid compliance issues during filings.
Leveraging Technology for Efficient Inventory Accounting
These professionals are also proficient in managing inventory tools, and they can simplify tracking the stock levels because you’ll typically receive alerts when some of the products are low. With a cloud-based accounting solution, you can access your data on any device at any time you want.
There’s also inventory information that will help you determine which products are trending and the ones that are getting low sales each month. Cloud-based accounting can track sales immediately and reduce the risk of manual errors, and you can also make wiser purchasing decisions that can prevent problems like overstocking. Integrating your financial software can help you improve your operational efficiency in no time.
