Amazon's financial reporting is designed for Amazon, not for your accountant. The settlement report is a 47-column spreadsheet that lumps product sales, shipping credits, FBA fees, advertising costs, refunds, reimbursements, and a dozen other line items into a single biweekly deposit. Your bank shows one deposit for $14,837.22. That number represents 847 individual transactions across 12 fee categories, and if you cannot break it apart, your books are fiction.
We process Amazon settlement reports for CPA firms across the US at Madras Accountancy. We have seen every variation of FBA bookkeeping mess, from sellers who record the net deposit as "sales" (wrong) to sellers who have not reconciled a single settlement report in two years. Our ecommerce accounting guide covers the broad picture. This article is specifically about Amazon FBA and why it breaks standard bookkeeping.
A standard bookkeeper sees a bank deposit and records it as revenue. For an FBA seller, that deposit has already been reduced by referral fees (typically 15 percent of the sale price), FBA fulfillment fees ($3 to $6 per unit depending on size and weight), storage fees (monthly and long-term), advertising costs (if using Sponsored Products through Amazon's internal billing), refund amounts netted against the deposit, and reimbursements for lost or damaged inventory added to the deposit.
Recording the net deposit as revenue means your P&L shows lower revenue than you actually earned, your fee expenses are invisible, and your profitability analysis is useless. You cannot tell whether your 15 percent referral fee category is accurate. You cannot identify which products are profitable after all fees. You cannot calculate true COGS because you are mixing revenue and expense netting.
The correct approach is to record gross revenue (the full sale price the customer paid), then record each fee category as a separate expense line item, and reconcile the resulting net amount to the actual bank deposit. This is what our offshore team at Madras does for every settlement period, and it is the foundation of accurate FBA bookkeeping.
The Amazon settlement report contains more line items than most bookkeepers expect. Understanding each category is essential for accurate books. Here are the major components our team tracks.
Product sales and product sales tax represent the gross amount the customer paid. This is your top-line revenue number.
Shipping credits are what Amazon charges the customer for shipping and passes to you. For FBA sellers, this is usually zero because Amazon handles shipping, but for seller-fulfilled orders it is a real revenue component.
Promotional rebates are the discounts you offered through Amazon's coupon and promotion system. These reduce your net revenue and should be tracked separately from sales returns.
Selling fees (referral fees) are Amazon's commission, typically 15 percent of the sale price. This is your single largest Amazon-specific expense and should be monitored closely. A sudden change in your referral fee percentage can indicate that products were miscategorized or that Amazon changed the fee structure for your category.
FBA fees include pick and pack, weight handling, and any oversize surcharges. These vary by product dimensions and weight. Our team tracks FBA fees at the SKU level to identify products where fulfillment costs are eating margins.
Storage fees come in two types: monthly inventory storage (charged per cubic foot) and long-term storage (charged on inventory sitting in Amazon's warehouses for more than 365 days). Long-term storage fees can be devastating. We have seen sellers paying $5,000 or more per month in long-term storage fees on slow-moving inventory that should have been liquidated months earlier.
Other transaction fees include subscription fees, high-volume listing fees, and refund administration fees. These are smaller amounts individually but add up across thousands of transactions.
Our team at Madras processes every line of the settlement report and maps it to the correct account in the general ledger. The reconciliation ties the sum of all these components to the actual bank deposit, and any discrepancy is investigated before the books are closed.
Cost of goods sold for an FBA seller is not just the purchase price of the product. Landed cost is what matters, and landed cost includes the product purchase price from the supplier, international shipping (if sourcing from China, which most FBA sellers are), customs duties and import taxes, domestic freight to Amazon's fulfillment centers, prep and labeling costs (if using a 3PL prep service), Amazon inbound shipping fees, and inspection costs.
A seller who buys a product for $4.50 from Alibaba and sells it on Amazon for $19.99 does not have a 77 percent gross margin. After adding $1.20 in ocean freight, $0.35 in customs, $0.80 in prep costs, $0.45 in Amazon inbound fees, $3.00 in referral fees, and $3.85 in FBA fulfillment fees, the true gross margin is closer to 30 percent. And that is before advertising.
Our team at Madras tracks landed cost per SKU by building a cost layer that accumulates all these components. When a unit sells, the full landed cost is what hits COGS, not just the supplier invoice amount. This is critical for accurate profitability analysis and for tax purposes (your taxable income changes dramatically when COGS is calculated correctly).
The challenge is that landed cost changes with every shipment. Shipping rates fluctuate. Exchange rates move. Suppliers raise prices. Each new inventory shipment creates a new cost layer, and the bookkeeping system needs to track which cost layer applies to which units sold.
Once you have accurate revenue (gross, not net deposit) and accurate COGS (landed cost, not purchase price), you can calculate profitability at the SKU level. This is the report that drives real business decisions for FBA sellers.
SKU-level profitability takes gross revenue per unit, subtracts COGS (landed cost), subtracts Amazon fees (referral, FBA, storage), subtracts advertising cost per unit (total ad spend on that SKU divided by units sold), and arrives at contribution margin per unit.
In our experience, most FBA sellers with 50 or more SKUs discover that 20 to 30 percent of their products are losing money when analyzed at the SKU level. The losses are hidden in the aggregate P&L because profitable SKUs subsidize the unprofitable ones. The SKU-level analysis gives the seller clear data to make decisions: raise prices, reduce advertising spend, improve sourcing costs, or discontinue the product entirely.
Our team produces this analysis monthly and trends it over time. A SKU that was profitable 6 months ago may no longer be profitable after a supplier price increase or an Amazon fee change. Catching these shifts early prevents months of losses on products the seller assumes are still making money.
Most serious FBA sellers are not just on Amazon US. They sell on Amazon Canada, Amazon Mexico, Shopify, Walmart Marketplace, and sometimes eBay. Each platform has a different fee structure, a different settlement cycle, and a different reporting format.
Amazon US settles biweekly. Shopify deposits daily (or on your configured schedule). Walmart settles biweekly. Each platform nets fees differently. And the inventory is often shared across platforms (multi-channel fulfillment through FBA or a 3PL like ShipBob).
Our offshore team reconciles each platform separately, then consolidates into a single set of financials. Revenue by channel, fees by channel, COGS allocated by channel, and net margin by channel. This channel-level profitability analysis is what tells the seller where to invest more and where to cut. Our multichannel ecommerce accounting guide covers the reconciliation methodology across platforms.
Inventory valuation method matters for FBA sellers because purchase costs change over time (supplier price increases, shipping cost fluctuations, exchange rate changes). The two methods that make sense for most FBA sellers are FIFO (first in, first out) and weighted average cost.
FIFO assumes you sell the oldest inventory first. If you bought 500 units at $4.50 in January and 500 units at $5.00 in March, the first 500 units sold carry a $4.50 COGS and the next 500 carry $5.00. FIFO generally produces a lower COGS in a rising-cost environment, which means higher taxable income. But it also gives a more accurate picture of current inventory value on the balance sheet.
Weighted average cost calculates the average cost across all units in stock. Using the same example, the average cost after both purchases is $4.75 per unit, and every unit sold carries that $4.75 COGS regardless of when it was purchased. This is simpler to maintain and is what most FBA sellers should use unless their CPA recommends otherwise.
The important thing is picking a method and applying it consistently. Our team at Madras tracks inventory layers by SKU and applies the seller's chosen method consistently across every period. Switching methods mid-year is an accounting change that requires disclosure and can trigger IRS scrutiny.
Amazon provides inventory reports that show units in stock at each fulfillment center, units in transit, units reserved for customer orders, and units in "unfulfillable" status (damaged, customer returns pending inspection). Your accounting records need to reconcile to these reports.
In our experience, the Amazon inventory count and the seller's accounting records rarely match exactly. The common discrepancies include units Amazon lost or damaged (which should trigger a reimbursement claim), units in transit between fulfillment centers that are counted differently in each report, customer returns that Amazon received but has not yet processed back into sellable inventory, and units removed from inventory for disposal that the seller has not yet recorded.
Our team reconciles the Amazon inventory report to the accounting records monthly, identifies the discrepancies, and records the appropriate adjustments: write-offs for confirmed losses, reimbursement receivables for Amazon-caused losses, and inventory reserves for units unlikely to be recovered.
Amazon distributes your inventory across fulfillment centers in dozens of states without asking your permission. As of Wayfair v. South Dakota (2018), having inventory in a state can create sales tax nexus, meaning you have an obligation to collect and remit sales tax in that state.
Most FBA sellers have nexus in 20 to 40 states. Amazon collects and remits sales tax on your behalf in marketplace facilitator states (which is now all states with sales tax), but the seller may still have filing obligations and must track which states they have nexus in for income tax purposes as well.
Our team monitors the seller's FBA inventory placement reports to identify which states have nexus, maintains a nexus tracking spreadsheet, and ensures that sales tax filings are current. We work with the CPA firm on the state income tax implications, which are a separate and often overlooked issue. Our multi-state sales tax compliance guide covers the compliance framework.
Under $250,000 in annual revenue, a seller can probably manage their own books with A2X or Link My Books automating the settlement report parsing. The tools are not perfect, but they are good enough for a simple product line.
Between $250,000 and $1M, the complexity starts exceeding what automation handles alone. Multiple SKUs with different cost structures, advertising spend optimization, multi-marketplace reconciliation, and inventory reorder planning all require human attention. This is where outsourcing to a team like Madras becomes cost-effective. Monthly bookkeeping for an FBA seller in this range runs $300 to $600 per month with our team.
Above $1M, outsourced bookkeeping is not optional. The seller is dealing with multi-marketplace reconciliation, complex inventory valuation across thousands of SKUs, significant advertising spend analysis, and multi-state sales tax obligations. Monthly bookkeeping runs $600 to $1,200 depending on SKU count and marketplace count.
If you are a CPA firm with Amazon seller clients whose books are a mess, or if you are an FBA seller looking for someone who actually understands Amazon's financial ecosystem, reach out at madrasaccountancy.com.
Yes. A2X and Link My Books automate the settlement report parsing and create summary journal entries in QBO or Xero. Our team uses these tools as a starting point and then handles the reconciliation, COGS tracking, and analysis that the tools cannot do automatically. We also work with Sellerboard and Helium 10 for profitability analysis at the SKU level.
Amazon owes sellers money when inventory is lost or damaged in their warehouses. These reimbursements show up in settlement reports as separate line items. Our team tracks reimbursements as a reduction of FBA fees (not as revenue) and reconciles against the seller's reimbursement claims to ensure Amazon is paying what they owe.
Yes. We do catch-up bookkeeping for FBA sellers regularly. The process involves downloading all historical settlement reports, bank statements, and purchase records, then rebuilding the books month by month with proper revenue recognition, fee tracking, and COGS calculation. For an 18-month cleanup on a seller doing $50,000 per month, expect 2 to 4 weeks of intensive work and a cost of $2,000 to $4,000.
We track advertising spend as a separate expense category and can produce ACOS (advertising cost of sales) and TACOS (total advertising cost of sales) reports by campaign and by SKU. We do not manage the ad campaigns themselves, but we provide the financial data that the seller or their agency needs to optimize spend.
Returns and refunds are tracked as separate line items, not netted against revenue. When a customer returns a product, we record the refund as a contra-revenue entry and, if the item is returned to sellable inventory, adjust the inventory count. If the return is damaged and not restocked, we record an inventory write-off. This treatment ensures that revenue, returns, and inventory all reconcile correctly and that the seller has accurate return rate data by SKU.
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