Have you ever wondered why your Amazon 1099 does not match any standard downloadable reports?
Given that these revenue numbers are submitted to the IRS, you’d think they would want to make it easy for sellers to understand how it’s calculated. Well, since bookkeeping is something we all have to take care of as business owners, I decided to dedicate an entire post on the subject, beginning with why your Amazon 1099 does not match other reporting.
Your Amazon 1099
Revenue reported by Amazon on the 1099 is calculated as the sum of:
- Product Sales
- Shipping Credits
- Promotional Rebates
- Sales Tax Collected
You should be able to tie back to these numbers by downloading a Date Range Transactions Report from your account:
- On the Reports tab, select Payments.
- On the Payments page, select Date Range Reports.
- On the Date Range Reports page, click Generate a report.
- In the Generate Date Range Report dialog box, do the following:
- In the Select Report Type drop-down list, select Transaction.
- For the Select Reporting Range section, select Custom and specify Jan 1 – Dec 31 for the desired reporting year.
- Click Generate.
- Download the report when ready.
Once you’ve downloaded the report, you’ll want to filter by “type” to only include “Order” transaction types. The sum of the five columns mentioned earlier, should tie to the 1099-MISC issued by Amazon on a month-by-month basis.
If you’ve done it correctly, your numbers should tie to the penny. I’m actually surprised they don’t make this information easier to find, but I hope these instructions helped!
How to Incorporate Amazon 1099-MISC Revenue into Bookkeeping
Since Amazon sends these figures to the IRS, it’s very important that it matches your reported revenue. Actually, the IRS only really cares if you report less than what the 1099 shows. It’s not really an issue if you report a higher amount, but that means you may end up paying higher taxes than necessary. Plus, it’s nice to be able to have everything tie together.
To take this next step, it’s a good idea to use a bookkeeping tool. I’ve primarily used Bench.co for my main business, but started a new Amazon partnership last year that isn’t that complex, so I decided to handle the bookkeeping myself. I’ll also assume most people reading this are doing their own bookkeeping through the rest of this post.
Since I was starting this from scratch, I took a fresh look at accounting software like Quickbooks Online and Xero with Pipemonk integration. Although I think Xero is the better platform, we actually decided to go with Quickbooks Online because that’s what my partner is currently using in another business, so the consistency was better for him. In any case, the process I outline should be very similar whether you use Quickbooks Online or Xero.
Oh, and one big caveat: While I aced all my accounting classes in school, I am m not an accountant or bookkeeper. While I believe my process to be correct, I recommend you consult with a professional.
So, let’s get started…
Once you’ve got your revenue numbers calculated, you’ve got to figure out how to include refunds and other Amazon fees, and how it all relates to the bi-weekly payments you receive from Amazon.
Since I was actually going through this process for myself, I documented the process fairly thoroughly and created a workbook that helps simplify the various steps. There are still some tedious steps, but I thought I’d share what I put together in case it could help others.
It’s not my intention to teach anyone how to do bookkeeping or accounting, so I assume you’ve got some basic knowledge. My goal was to show you how to get the information you need from Amazon and apply it to an accounting program so everything ties together. Also, the workbook was created for my own use. I’ve done my best to make it as user friendly as possible, but you’ll also need to be comfortable using Excel, especially if any cell references have to be adjusted to match up with your data.
This is 100% free, so I can’t guarantee any support, but feel free to post any questions about it in this thread.
In a nutshell, the workbook should help you:
- Calculate your Gross Revenue so it ties the 1099-MISC Amazon issues (as explained above)
- Calculate all your Amazon expenses
- Calculate Refunds from Amazon
- Understand how this all relates to payments you receive from Amazon
- Calculate the accrued balance due to you from Amazon at year-end so you can include it as an asset
In terms of using this information, I finally concluded that the best approach is to set up a fake bank account within the accounting program (Quickbooks or Xero) that represents the Amazon accrual account. This is the account Amazon credits when a sale is made.
I named the account “Amazon PMT Account” within the accounting program. In real life, this account grows with each sale until Amazon distributes the cash every other week. I consider the income from Amazon to be earned when the customer transaction is complete, not when Amazon distributes the cash. This allows me to post the same revenue figure that Amazon reports in the 1099-MISC.
Once I made this decision, the rest fell in to place rather easily since you can mirror real life. So, you should have your Amazon PMT Account and your regular business checking account set up within the accounting program.
If you follow the instructions within the provided workbook, the “P&L Details” tab will provide you with all the information necessary to include in your accounting program. All the information you need is available within the Transactions Report we downloaded earlier. You can see my example data below:
To show you how I’ve entered everything within Quickbooks Online, I’ll show you exactly how I’ve posted things for July 2015.
To book the income, I created a Sales Receipt for each month. This amount ties to what’s reported in the 1099-MISC and the “deposit” is made to the Amazon PMT account.
As noted earlier, the revenue figure includes Product Sales, Shipping Credits, Gift Wrap Credits, Promotional Rebates and Sales Tax Collected, but the sum is $6,247.17.
Here are a few things to note:
- I created a customer called “Amazon Marketplace”
- I made the Sales Receipt Date “July 31, 2015”
- The “deposit” goes to the accrual account I set up (Amazon PMT Account)
I add expenses in a similar fashion by creating an expense each month to account for Amazon Selling Fees, FBA Fees and Other fees.
- Expenses are associated with the same customer, Amazon Marketplace
- I entered the expense as of July 31, 2015
- The expense should be “paid” by the Amazon PMT account, effectively being deducted from cash that accrues through sales
*I entered an individual line item for Commissions, FBA Fees and Other Fees for total expenses of $2,385.50.
You may begin to see a pattern here. To book refunds, I created a Refund Receipt for each month.
- I continue to use customer “Amazon Marketplace”
- I made the Refund Receipt Date “July 31, 2015”
- The refund is also paid from the Amazon PMT Account
If you go to your bi-weekly Payment Statements from Amazon, you’ll notice that every credit and debit is included in the transactions we’ve entered above. So, Sales and other credits increase our balance, while refunds and expenses decrease our balance. I then create a Transfer within Quickbooks, moving cash from the Amazon PMT Account to my business checking account, using the exact date and amounts shown in my bank statements. The total of my two July deposits is $3,418.49, which matches exactly what is calculated using the workbook.
If you’ve done everything correctly, the Amazon PMT account balance should always be accurate at month-end (even though there isn’t actually an Amazon report to tie this against). With this process, you will have posted your Amazon revenue and expenses correctly and you’ll also be able to reconcile your bank accounts properly*.
*Keep in mind, if you have Quickbooks or Xero connected to your bank account, it may automatically pull the deposit from Amazon. If so, you will have to manually delete it and add it back in as a transfer.
Of course, your business may have other revenue and expenses, but this should help put you on the right track with respect to Amazon accounting.
This post is part of the Ultimate Wiki Project