taxomate: 📚The Ultimate Guide: Setting up QuickBooks for Amazon sellers

Bookkeeping is one of the most critical aspects of doing business on Amazon. As such, it is essential to use an accounting system (QuickBooks) and properly set up your account. Below is a guide to Setting up QuickBooks for Amazon Sellers the correct way.

Getting Started with QuickBooks

The first step of setting up QuickBooks for Amazon is signing up for a QuickBooks account.

QuickBooks has several different plans on offer, but Essentials is your best bet. Enter all the necessary information and proceed to your account dashboard.

Navigating QuickBooks

Now that you’ve taken the first steps to setting up QuickBooks, we are going to get started with the interface.

The service has three main menus you should understand, although there are several different paths to the same destination, as is the case with anything like this.

Create Menu

Setting Up QuickBooks for Amazon Sellers

The create menu looks like a “plus” sign and is in the top right.

The create menu contains a lot of the day to day operations of a business. Here is where you write journal entries, enter expenses, write checks, and make deposits.

Preference Menu

The preference menu, also in the top right, looks like a "gear".

Here you can find your preferences and manage the reconcile feature of QuickBooks.

The gear section is also where you can find the menu to add some other users and other things that you won’t be using too much, but it’s always good to know where these things are if you need them.

You will likely build up quite the list of vendors in your time as an Amazon seller. The customer's list is mostly going to be Amazon. They won’t be purchasing from you directly, but they do provide you with the income from your sales, and profit comes from customers. You may also get money from Shopify, eBay, or your proprietary storefront.

You don’t need to add details about the individuals who order from you into QuickBooks. This can quickly become thousands of names, most of which will only ever be seen once.

There’s no reason to track them all. If you were interested in individual customer information, then you can get it from Amazon (or the storefront you use), so there’s no reason to make another note of it when setting up QuickBooks.

Setting up QuickBooks Preferences

There are several options you can play around within the preferences menu, but most of them aren’t related to your business.

The preferences can be found by clicking on the gear icon and opening up the menu. From there, click on Account and Settings to be taken to this page;

The Company section is where you can fill out the critical information about your company including contact information and a logo – should you have one. Don’t worry if you don’t have one though or don't want to hassle with uploading.

From the company section, you can also choose the type of business you are managing (Sole Prop, S Corp, LLC, etc.). See our Guide to Choose a Legal Entity for Amazon Sellers.

Finally, take a look at the marketing preferences section. Here is where you can choose whether or not you want to receive emails, postcards, and the like from Intuit – the company behind QuickBooks.

There’s nothing in Sales, Expenses, or Payments that you need to worry about too much. So let’s skip ahead and look at the Advanced menu to the left of this section.

When you open up the Advanced menu, make sure of the following

The fiscal year and tax year begins in January (unless it doesn’t work for you, but this is rare).
Accrual rather than Cash is selected for the accounting method.
Everything else in the preferences menu can be left where it is for now.

Click on the Done button at the bottom of the screen to save these changes.

Setting up QuickBooks Chart of Accounts

The chart of accounts (aka COA) section can be considered the foundation of your accounting.

The goal of the COA is that you need to make it as detailed as possible to get high-quality information from it. You want to make sure that the data is valuable or all it’ll do is make it take longer to do your books.

As you might have guessed, there’s no such thing as a “one size fits all” solution for a chart of accounts, no matter how much people like to claim otherwise.

I’ll provide you with a basic COA that you can use for an Amazon business, but don’t to add to it as you grow.

We always recommend keeping the following simple concepts in mind when adding accounts:

Try to keep your COA structured and organized. The messier the chart of accounts get, the more likely there will be errors and other problems to account for.
Keep it accurate from the start!

Below is a list of accounts that you may want to put in your COA. QuickBooks adds some accounts by default, but some you may need to add manually.

You may want to deactivate other accounts QuickBooks automatically adds to keep it looking clean. So, here’s the list of accounts:

Manually Adding to your QuickBooks Chart of Accounts

To manually add accounts, go to the transactions menu. This shows all of your existing accounts. If there are any missing accounts, click the New button to the right. A window will pop up, and from here you can choose an account type. Choose the type and then the specific account you need.

Please note: leave the balance, date, and sub-account fields are for now. You don’t need to mess with those.

Pro Tip: With numbered accounts (e.g., banks or credit cards) it may help to add the last four digits of your account # to the name in QuickBooks. This makes it easier to find if you have more than one bank account or credit card for your business.

Cost of Goods Sold Example

Same as before, select the New button in the transactions menu. Choose “Cost of Goods Sold” as the Cost of Sales detail type. Enter the name "Amazon Service Fees – CoS" to make it easily identifiable. That's it!

Pro Tip: when you would like to enter multiple accounts, you should choose “Save and New” instead of “Save and Close.” The latter makes you go through the whole process from the beginning, while the former opens up this window again and lets you put a new account type in immediately.

Tips and Best Practices for Working with Chart of Accounts

1. Old Accounts

If you don’t plan on using an account any longer, make the account inactive or make it invisible. Delete any accounts that you never use.

There may be some accounts that QuickBooks consider essential and won’t let you delete.

2. Overly Specific Accounts

Most businesses have “Meals and Entertainment” as standard. Some people would prefer to split them into specific accounts for “Meals” and “Entertainment.” That make sense and would be okay.

What you don’t need to do is take it another step and have different accounts for different restaurants. You don’t need to be so specific in naming your accounts.

An account like “Office Supplies” is standard for most businesses. Some people will then make an account for “Office Equipment,” thinking that they’ll use it when they buy something for their offices like a calculator or printer. This is going to trip you up in the future. Where would you put toner? Toner belongs to office equipment, but it isn’t equipment in and of itself.

If you aren’t able to tell instantly where something goes between two accounts, then you’ve likely got too many accounts that are too similar. It’s time that you started merging and renaming accounts and thought about reigning in the tendency to add new accounts rather than pick from the ones you have.

3. Specific Dates

Much like specific accounts, particular dates have no place in the COA.

For example, you could have an account called "State Taxes." What you don’t need is an account called State Taxes 2018. When will you ever use that when the year is over again?

Any account that is either only going to be used a few times or is otherwise too specific, should be avoided.

4. Accounts Correctly

If you’re keeping track of loans in your equity account, tracking credit cards in bank accounts, and tracking expenses with negative income, or are doing anything weird like that, then you’ll make a lot of trouble for yourself.

While you might be able to force an account type to do something else, what you end up with is a strange-looking financial statement and – most likely – errors with your books.
Ask an expert or check the QuickBooks forums if you are confused.

5. Relying Too Much on Miscellaneous Accounts

If over 10% of your entries wind up in miscellaneous or uncategorized then you are likely doing something wrong.

There should only be a few transactions that you can’t classify properly when setting up QuickBooks.

Less than 1% of your total expenses should come under miscellaneous accounts by the end of the year. Ideally, it would be best to have no uncategorized expenses at all.

Connecting Banks and Credit Cards

After setting up QuickBooks chart of accounts, let's connect your bank and credit accounts for automatic sync with QuickBooks.

Open up the left main-navigation select Banking. The first time that you open up the banking section, you will be presented with a page about connecting accounts.

Search for the name of your bank - follow the steps to connect your bank account and finish setting up QuickBooks bank connection. Make sure that you also connect any credit cards you have for your business after connecting the business bank account.

Pro Tip: If you use a PayPal account for your business, then you can connect it now too. We don’t recommend doing that though.

Pro Tip #2: We recommend not connecting your Square or Stripe accounts. Most people who do end up connecting their Stripe/Square accounts create a complicated mess of duplicate transactions as these payments are also going to your bank account.

Fixing Opening Balances

If you have recently opened a bank account ( i.e. within the past 90 days) QuickBooks should correctly display the opening balance for you.

If the bank account is older than 90 days, then you have to adjust so your books to only show relevant data - not old activity and balances.

If you started your business last year (let’s say October as an example) then I recommend setting up QuickBooks to get back to January of this year at the very least.

If you go back to when the business opened up and the account was new, then there’s no need to worry about fixing balances. If your account has other activity or you don’t go all the way back to when it was opened, then you will have to change the opening balance.

PROTIP: Look at the bank balance on the day before your first business transaction. That is how much you want to enter as the starting balance for your business. That way the account should reconcile, meaning that the balance from QuickBooks matches that of your bank statements. You can do this by adding how much money you need through a journal entry to get the correct balance. You can attribute this to the owner or a shareholder so that it doesn’t affect business operations.

Entering Previous Expenses

Now we’ll be using the list of expenses that you made before opening your business bank account or using a business credit card.

We’ll go through one journal entry per month to allocate the expenses to the proper account and offset the total you spent as money invested into the business. This helps to reduce your tax burden as it allows you to write off the investment against the income it earns.

Start by sorting expenses by date and then grouping them together by month. If you had your first expense in January for example, then you are going to combine all of January into a single entry and then February into a separate entry and so on and so forth until everything is done.

If you have more expenses than you paid off with personal funds even after opening a bank business account, then these can be included in this way. You should try to move towards purchasing everything through business accounts as soon as possible though for tax and liability purposes.

That's all we have for now for setting up QuickBooks as an Amazon FBA Seller. For additional tutorials check out the rest of our taxomate Amazon accounting and booking blog!

taxomate

Tuesday, January 14, 2020

📚The Ultimate Guide: Setting up QuickBooks for Amazon sellers