Amazon Accounting Software A2X | The Whys and the Hows

So my goal is, by the end of this video, that you're able to basically go in, download A2X right away, set it up, sync it with everything, be off and running within an hour. If you like this video, please subscribe to our channel. We put out a lot of other great content just like this. So we're helping ecommerce companies every single day with tools like A2X, so let's dive right in.

0:56 Why the deposit is not your income

The first thing I want to talk about is the why of why it's so important to do Amazon accounting correctly, and what A2X does and how well it works to do this.

So if you were to go into the backend of Amazon and download one of the reports, this is what you would get. This has been exported to Excel. Only this, this like total overload of information that looks like the matrix, would be thousands and thousands of line items long. It's obviously very overwhelming. As you guys know, Amazon deposits every two weeks and there's no rhyme or reason to that. It does not tie out with month end or anything like that, and that deposit represents the summary settlement of all of the Amazon activity for that period of time.

Well, in this particular case, this is a report that I actually exported, and this is data that I actually pulled from one of our clients. And in this particular case the end deposit that actually hit the bank account, one hundred nine thousand dollars, sorry, hundred nine thousand five hundred eighty dollars.

1:56

So if you're using an accountant who doesn't understand how to do ecommerce accounting, or if you're doing this yourself and you're just kind of trying to get by and you're not really sure how to handle it, the most common mistake that we see companies make is that they call this amount of money just income. Well, the number one rule of this situation is that the deposits that hit your bank account for sales channels are not the income numbers. And this is not just true for Amazon, this is true for any channel that you sell on.

In this particular case, that $109,000 deposit, that would have been defaulted to just being called income [unclear], was actually all of this activity. It was Amazon sales, shipping income, sales tax collected, FBA inventory reimbursement, FBA fees, chargebacks, refunds, shipping fees, promo rebates, etc. All of it giving us a net deposit of one hundred nine thousand dollars.

Now in this particular case, Amazon actually has over four hundred different types of things that they are tracking, especially if you're using FBA for shipping. And in this particular case these Amazon sales were one hundred and forty seven thousand dollars, which is a huge difference from this one hundred and nine thousand dollars. So if you were just defaulting, calling this one hundred nine thousand dollars sales, you would have been off by what is that, like thirty thousand dollars or something like that.

3:10

So the summary of all of that is that you would have all of these eight line items reduced to one. You would have key data missed as part of the process. If I'm an ecommerce seller, I actually really do care about how much money I'm spending on these types of things. Let's say for example that I'm trying to evaluate whether to continue to use FBA for my shipping, or whether I should maybe use a local 3PL, or whether I should be opening my own warehouse to handle this myself. Well, when the fees of the Amazon activity is buried inside that settlement, it's really hard to make an educated decision, because you can't see this data [unclear].

So another thing that it really skews is your product margins. So gross profit is one of the most important metrics [unclear] for an ecommerce business to watch. Gross profit is sales minus cost of goods sold, gives you gross profit. So if my sales numbers are off by thirty thousand dollars, by thirty percent, that's a huge skew of my margins.

And the timing issues that factor in with these settlements is huge as well. So Amazon typically doesn't, like, they have all kinds of rules regarding when they actually settle sales. So, you know, depending on the time when it was shipped, the delay after it shipped, all those kinds of things. So there's all kinds of timing issues created with just going off of just the deposit alone.

4:37

Also a misstatement of balance sheet activities. So here we see evidence in sales tax that was collected. This is not a profit or loss, this is not either an expense or income to the business. It's simply sales tax that was collected, that was remitted to us, that we now need to turn around and remit to the state. But this is a balance sheet item and not a profit and loss.

Another area where this can get quite skewed is if you're using Amazon loans, and the money in and the money out from those loans will also come through this settlement. So that's another example of how it will really skew your balance sheet activity. And this number between here and here is a 30% difference in revenue. So all kinds of problems created with that.

5:17

So I want to go to A2X and I want to show you guys how effectively A2X solves this problem, and how basically how neat and clean it packages the data and allows you to record this in a way that becomes useful. So there's three things that A2X does really well. Amazon activity summary, Shopify activity summary, and COGS. Today I'm gonna go pretty deep into these two, but I just want you to know that it does also do Shopify accounting, but the focus of this particular video is Amazon accounting.

5:45 Matching A2X entries in QuickBooks

Okay, so let's go to QuickBooks first. Okay, so first thing I want to show you is the banking center inside QuickBooks. So hopefully you guys are fairly familiar with QuickBooks. You might also be using Xero. If you're using Xero the interface is going to look different but the functionality is almost identical.

So this is the banking center of QuickBooks. When I sync my bank accounts and the transactions come in, I can see here the transactions that are basically sitting here waiting to be accepted. Now these are transactions that I haven't imported any A2X journal entries for, and you can see that it just says here Amazon settlements, and that the category that it's trying to default to is product income. If I was to just click this Add button here, it would record product sales of two hundred twenty seven dollars and forty four cents, and that's it. That would basically be equivalent of us recording that hundred and nine thousand dollar deposit and calling that income. That would basically be the equivalent of what we were doing.

6:44

You can see that after I have imported these journal entries from A2X, I now have a really great journal entry that QuickBooks finds and it's prepared to match against, and it actually matches against exactly what deposits into the bank account. So I already know that the amount has been reconciled to the actual amount inside the bank account.

So let's take a look at what this journal entry looks like. So here's the journal entry it's trying to match against, and I can see inside this journal entry that it has broken out all of these different activities. Now the way that it's broken out is based on the way that I chose to map it inside of A2X, which we'll talk about in just a second, but basically I have all of these different line items, the sales and the fees and the refunds and the shipping and sales tax that was collected and all those other things.

7:31

So in this case this is my deposit that's tying out to my bank account deposit, but this all represents six hundred and one dollars and seventy one cents in sales. If I were to just call this three hundred eight dollars and forty seven cents in sales, that would be a misstatement of basically like, well, fifty percent or a hundred percent, depending on whether you're saying this to the service to this, but basically it's a pretty extreme misstatement. It would be recording half of the sales that actually processed plus missing all of this other detail of what actually went down. So it's pretty valuable.

And after this journal entry's imported, all I have to do at this point is just click this button that says match. And now that journal entry is now recorded in QuickBooks. All of those line items, of all of those different things, are now recording on my profit and loss. As an Amazon seller I can now see all of the activity that happened there.

8:31

So what does this look like on the A2X side? So here you can see that I have a settlement. Well, let's just take a look at this one, five hundred twenty six dollars and seventy four cents. Over here on the A2X side, you sync all of these accounts and everything, I can see that this is the transaction right here, 526 dollars and 74 cents, that I need to bring in settlement data for. Over here I can see the settlement data has been brought in, I have a transaction here ready to match, and if I click match they will record everything.

So what about this one? This one doesn't have one recorded yet, two hundred fifty eight dollars and 21 cents. If I come up here I can see exactly which transaction needs to be sent over, and I would just open this up, review it, say sent to QuickBooks, and it would give me the same nifty little transaction to match to.

9:17 How A2X handles month end timing

Now another thing I want to show you is, because of the fact that Amazon settles over two weeks, another problem it creates is it creates timing issues. So here I see a settlement that came in on the 5th of December. Well, because Amazon settles every two weeks, this basically represents ten days of sales in the month of November. So the majority of this deposit is actually November sales, not even December sales. So if I was just to hit add instead of match right here, I would not only be missing a whole bunch of key data, but I would also be really throwing off timing issues. And so if I'm trying to record accurate cost of goods sold, if I'm trying to see how my business is performing month-to-month, this timing issue also creates a problem.

10:03

So I want to show you the way that A2X solves this problem. So when there's a settlement that spans over the end of a month, it actually makes two journal entries instead of one. This is what the first journal entry looks like. This is the journal entry dated in November that has to do with the settlement that I just showed you guys. Let's, well actually let's look. So this settlement right here is five hundred twenty six dollars and seventy four cents, settlement spans from November 21st to December fifth.

The first journal entry it makes is the one that's actually dated in November that records November sales. So this was all the activity that had to do with November, including these November sales right here. But here, instead of recording the deposit into the bank account, instead it's recording this Amazon carry balances. Well, you can name it whatever you want, but basically it can either be a bank account or it can be like a current asset account like an accounts receivable or something like that. But basically what you're saying is you're saying, hey, month end based on all the activity of Amazon having to do with this settlement, Amazon owed me three hundred fifty three dollars and four cents at the end of the month. It hasn't settled yet, so they haven't paid it out yet, but they owed me this money.

11:21

Then what happens is when I have the settlement that actually comes in, so this is the settlement where that money actually settled, so I have, you see, five hundred twenty six dollars and seventy four cents, so that's this settlement right here. When that actually comes in and settles, let me show you what this journal entry looks like.

So first of all we now record the rest of the sales. This one is actually dated in December instead. And now this amount is 353.04, is now taken out of what went into basically that holding account receivable, saying hey, Amazon owes you three hundred fifty three dollars and four cents. Now we're taking it out and saying they no longer owe you that money. And now we see the deposit that captures both the money that they owed us at month end and all the sales now that have to do with December. And now this ties out to what actually hit my bank account. So this amount here I can now just click match and it will record all of that.

12:20

But most importantly, A2X solved the issue of month end sales being completely skewampus on this. Yeah, you're welcome for that really cool word, use it on your kids. Skewampus. So it solved the problem of the timing issue and it also broke out all of the activity accurately. So as you can see it just does a really great job, like just tying all this out.

12:41 Setting up and syncing A2X

So let me show you how it works. Let's go take a look at A2X.

So in order to set up A2X, first of all, it's a very straightforward program. One of the things we love about A2X is that we've never had to hire somebody to set this up for us, because it's never taken us longer than an hour to set up a new client, and it's never been very complex. So we're a big fan of how straightforward it is, because we also have helped with like inventory implementations, NetSuite implementations, stuff like that. We're very familiar with implementations that are very complex and take a long time to manage, and this is definitely not one of those.

13:19

So I want to show you how this works. If I was gonna set up A2X, the first thing I would do is I would come up here to accounts and taxes, and this is where I'm going to map all of the different types of line items. Well, actually the first thing I do is I sync the accounts, so maybe I should start with that first.

Now this is a demo account that A2X very kindly provided with us, to let us demo this for you, so I'm not gonna be able to show you this entire process start to finish, but I'm gonna be able to kind of show you how to access it. If you had set up a new A2X account, right here on the home page you would have a button that said sync to Amazon, and another button over here that said sync to QuickBooks or Xero, basically would allow you to sync to your accounting software. If I come in here to edit you can kind of see a little bit of what's going on here, but basically inside these connections, and it's a very simple, very straightforward process.

14:15

It's going to ask you whether you are the actual Amazon seller, like admin, or whether you're doing this on behalf of your client. This is another thing we really love about A2X, is that they make this process really simple. So you're either going to be able to just put in your Amazon Seller Central login credentials and it will sync to the bank account, or if you're an accountant who's trying to do this instead, you're going to basically put in your client's email address and it's going to send them an invitation asking them to enter their Seller Central credentials, and as soon as they do that it will sync to their Amazon account. So it's very simple, it's very straightforward.

Same thing with QuickBooks. With QuickBooks you're just gonna say, hey, I want to use QuickBooks, you're gonna put in your QuickBooks login credentials for QuickBooks Online. You're going to, if you're an accountant, you're gonna select the file that you actually wanted to sync with, and that's it. It's literally that simple, it's very straightforward.

15:11

So the next thing you're going to do, oh and by the way, if you are doing Shopify then it's gonna be the same thing, there's just gonna be a button that says sync to Shopify instead, and it's gonna ask you for your login credentials, and it will go through that same process. It's very, very straightforward, it's very easy to follow.

So the next thing you're going to do is you're actually going to map the activity that's going through your specific Seller Central account to what is actually the accounts that are actually available in your QuickBooks or your Xero account. So it's pulling here, first of all, all of the different Amazon activity that's coming through your account. So you don't have to log all 400 different types of activities, you just log the things that are relevant for just you. You can kind of click on this and see what exactly it's talking about.

16:05

Now when you're syncing, so these accounts that are here and that are available right now, these all represent account options that were in my QuickBooks. But I have the option here of either syncing it to QuickBooks and having it select from accounts that are already available, or Amazon does, I mean A2X does actually have the ability to like create accounts on the fly.

So I want to show you guys what this looks like. So if this wasn't mapped to anything and I was preparing, these are all the accounts that are currently in my QuickBooks account right now. So I would just pick one that looked good. In this case I'm just gonna pick promotions, that's for this, it works.

And after I've mapped everything here, I'm just gonna say save mappings, and now this is ready to roll. I've now taken all the activity that's running through my individual Amazon Seller Central account and I've mapped it, either choosing accounts that are already available in my QuickBooks software or Xero software, or I am basically putting something in here and then A2X is [unclear].

17:18 Settings, mapping, and cost of goods sold

Let's get back over to QuickBooks. So I've tried to set all this up. The next thing I'm going to consider is I'm going to consider my settings. So there's not a lot of settings that you need to consider to get going. The primary one that I would consider is this one called invoices. So basically invoices determines how you want A2X to push data into your accounting software. They call it invoices, but they're actually journal entries. So they're basically asking, how do you want our journal entries to push into there?

So you can either group by SKU, you can just summarize by all sales, you can summarize by product type. If you have different Amazon stores that are running through one A2X file, you can say I want to specify by, like I want to set up different classes for different marketplaces, you can group by country. You can, you know, I mean accountants, we like to get all kinds of [unclear] about our granular level of detail and stuff like that. So rest assured, you have the ability to manipulate the way that data is coming in there and really have it show up the way that you want it to.

18:25

The next thing that I would consider setting up, but only if I wanted to use this feature of it, is my cost of goods sold. So cost of goods sold inside A2X, what you need to, it is such a great, great, great, great, great tool. Again, like I would say about a lot of things about A2X, what they do they keep very simple and they do very, very well.

So what A2X cost of goods sold is not is an inventory tool. And what I mean by that is, it's not tracking your quantity of inventory available, it's not updating your channel with inventory that you have available in quantity. It's not an inventory master, it's not an inventory tool that's tracking the value and that you're putting in your bills and POs, and every time you make a new order and a new shipment arrives it's updating your product costs. You know, things like first in first out, last in last out, average cost. It's not doing any of that.

19:22

But what it is doing is it's saying to you, do you know what the costs are of your SKUs? And if you know what the costs are of your individual SKUs, these are SKUs right now that it's pulling from my channel that are currently selling. If I come in here and I say, yeah actually I do, the cost of this particular product is, maybe I'm going to say it's six dollars 80 cents, it will tell me how many is currently in stock, how many has been sold, and when it last viewed the inventory. Basically it goes into your FBA account and it looks at the Amazon, like the inventory that you have reflected in your Seller Central account. It's looking at it, it's telling you what you have in stock. But even more importantly than that, if you identify the cost of your individual SKUs, then it will actually make a cost of goods sold entry at the same time that it makes your sales entry.

20:19

So that entry looks like this. It's a very straightforward entry. Basically, like, I hope you guys watch our videos on our channel about inventory management and all things inventory, because it's such an important thing for ecommerce businesses to be watching and tracking, and it's so, so, so often done poorly or done incorrectly or misunderstood. But they just keep this really straightforward.

So inventory goes onto the balance sheet as an asset first, and then should be moving out of an asset account proratedly. That's another really great word you can use. Into cost of goods sold based on what actually sold during that period of time.

So what A2X is basically doing is it's saying, okay, well we had three of these SKUs sell and the cost of them was two dollars and ten cents, and we had four of these SKUs sell and the cost of that was two dollars and ten cents, and we had eight of these sell and the cost of that was six dollars and 80 cents, and all of that multiplied out is the cost of goods sold. So it does a very neat, clean job of basically recording cost of goods sold.

21:26

So some of the ways that we use this is that, first of all, if we're dealing with a client that has very stable costs where this is not really changing very much ever, then we'll just enter these costs and we'll just run with it, and we'll just have them verify that the costs have not changed on a monthly basis or whatever.

Or if we are maintaining our client's product cost catalogs for them, meaning that, we do this often if they don't want to incur the cost of inventory tool because they aren't dealing with fulfillment and they're not dealing with, you know, warehousing, packing and shipping, they're not doing any of that stuff, and they just need something that will basically track costs for them, we will track their product cost catalog for them. And if that's the case, and if it's changing periodically, then we will just upload our new, after all their activity of the month where we consider all the new shipments that came in and all the new SKUs and the costs that were associated with those SKUs, we track an average cost every time they receive a new shipment. If that's the case, then we will just upload a new spreadsheet with the average costs each month before, with each settlement, before you allow A2X to push over the cost of goods sold settlement. So if you're uploading a new spreadsheet on a monthly basis, then this is where you would do that. You would just upload your cost data and then you're ready to go.

So as soon as you've done all of those setup pieces, and feel free to like go through the settings here and just see what else is available here. There's a couple things I didn't show you guys, like how do you turn on cost of goods sold, like all this kind of stuff, but it's pretty simple, it's pretty straightforward, and just a little bit of poking around will help you figure out where you're at, plus A2X has great support.

23:19 Pushing settlements over

So after you've done all of that, you're now ready to come in here to settlements and you're now ready to start pushing things over. So if I have things in blue it means that it's basically ready to go.

So let's come up, let's see what we have sitting here in outstanding banking credit cards. So it looks like right now this settlement for 250 dollars and 21 cents is still sitting here, has not been, like the data is not in QuickBooks yet. So I'm gonna find that one, looks like it's right here.

So the first thing I'm going to do is I'm going to review this. And the reason I'm going to review this is because, like, when I come in here to look at this, it's important that every single one of the line items has something that's mapped to. And A2X, Amazon will regularly like throw in new weird fees, line items, all that kind of stuff. Like I said, there's over 400 different types of transactions and expenses and income, all that kind of stuff that A2X, I mean that Amazon, like pushes over. And so I just need to check and make sure that everything that has to do with this particular settlement is good and ready to go. So this one looks good, this looks ready to go.

24:27

So now I'm going to send these two invoices into QuickBooks. So it is two invoices because of this one, because this settlement here spans month ends, which is something we talked about a minute ago. So this particular settlement is going to require both journal entries, one to tie out sales as of that we're still in December and to record the receivable from Amazon as of month end, and the second one to record what actually tied out to the bank account and to basically relieve the receivable that was recorded. So this is, it's send two invoices to QuickBooks. Oh, okay, let's see. Took care of it, yes. So now I'm gonna refresh this page. Yeah, wait for just a second.

25:28

You see it says over here, so it says we've created two invoices for this settlement. Now I come in here, QuickBooks just still taking its time, and now I have a journal entry to match against for the actual settlement in the bank account, and another one that recorded all of the activity as of December.

So as you can see, this is incredibly straightforward, incredibly easy to do, incredibly easy to set up. Probably the most daunting part of the whole thing is actually mapping the accounts and taxes. So A2X actually has a sample of, hey, this is how we recommend that you map it, if you're kind of starting from scratch and you don't know how to do it. We also have a sample mapping in a blog on our website as well. It's very straightforward, it's very easy to do.

And that's it. Like, you can see it's just crazy easy. So like if we were to go back and we were to look at like this PowerPoint that shows like this data, and sorting it out and trying to figure out what it's telling you, and trying to find all the numbers and dealing with that sheer amount of volume, and you know, taking what would otherwise be a really erroneous situation where we're calling it like one hundred nine thousand dollars and calling that all sales, and instead being able to see a lot of detail of what actually happened, that's incredibly valuable process that it does, and it's incredibly straightforward, easy to do.

26:57

So if you guys have any questions, reach out to us, reach out to A2X. We're happy to help you. We love working with clients that are selling on Amazon and other channels as well.

Some additional resources we have available. We have a blog on accounting for Amazon sellers, we've got the link down below. This will help you understand more of the challenges you face in your accounting as Amazon sellers. Again, please feel free to subscribe to our channel, and we'll see you next time.