Most Amazon sellers close the month by reconciling the bank account and calling it done. That catches the cash and misses almost everything that makes marketplace accounting different from ordinary retail accounting. The six steps below are the ones that get skipped most often, and each one distorts a specific number when it is left out.
1. Reconciling the reserve balance
Amazon holds a portion of your money as a reserve, and the amount changes constantly based on account health, delivery dates, and claim activity. That balance is yours. It is an asset. It belongs on your balance sheet.
Sellers who skip this treat the deposit as the entire settlement, which means the reserve simply vanishes from the records until it is released later and shows up as unexplained income. At scale the distortion is large. A seller with $180,000 in monthly sales can easily carry a five-figure reserve, and a balance sheet that omits it understates assets by that amount every month.
The fix is a receivable account for the marketplace balance. Each settlement moves the reserve in or out, and the account balance should tie to what the settlement report shows as held.
Why this one matters beyond accuracy
Lenders look at the balance sheet. A seller applying for inventory financing while omitting a substantial marketplace receivable is presenting a weaker position than they actually have.
2. Separating the settlement into components
This is the step that everything else depends on. A settlement deposit is gross sales minus referral fees, fulfillment fees, storage, advertising, refunds, chargebacks, reimbursements, and reserve movement.
Recording the deposit as revenue understates revenue and omits every expense inside it. Gross margin then looks wrong, advertising spend disappears from the income statement, and no expense line can be tracked over time because the expenses were never recorded separately.
Amazon publishes the component definitions in its Seller Central fee reference, and the settlement report itself breaks out every line. The data exists. It just has to reach the general ledger.
3. Cutting off the period on settlement dates, not calendar dates
Amazon settlement periods do not align with calendar months. A settlement routinely straddles a month boundary, covering the last few days of one month and the first several days of the next.
Sellers who assign a whole settlement to whichever month the deposit landed in are misstating both months. In a flat month the error is small. Across November and December it is not small, because sales volume differs enormously on either side of the boundary.
The correct treatment splits the settlement at the period edge. If that is impractical, the alternative is applying the same rule every month so the error is consistent and at least the trend line stays readable. Switching approaches between months produces variances nobody can explain later.
4. Recording inventory as it moves, not as it is purchased
Inventory purchased is not an expense. It is an asset that becomes cost of goods sold when the unit sells.
Sellers who expense purchase orders at payment get profit swings that track their buying schedule rather than their trading. A heavy restock month shows a loss. The month after shows an inflated profit. Neither reflects what happened.
The month-end step is moving the correct amount from inventory to cost of goods sold based on units actually sold, at landed cost including freight, duty, and prep. Landed cost is the part sellers most often get wrong, because the supplier invoice is easy to find and the freight invoice arrives separately weeks later.
The FBA wrinkle
Units in Amazon fulfillment centers are still your inventory. So are units in transit. Both belong on the balance sheet, and both are commonly omitted because they are not physically present anywhere the seller can see.
5. Accruing refunds that have not happened yet
A sale in the last week of the month carries a predictable amount of future returns. Recognizing all the revenue and none of the returns overstates profit in every growing month.
The calculation is straightforward once you have a return rate by product category. Multiply recent sales by the historical return rate, book the estimate as a reduction of revenue with a corresponding liability, and true it up next month against what actually came back.
Sellers with return rates under about three percent can reasonably skip this. Apparel, footwear, and anything with fit or sizing variability cannot, because return rates in those categories are high enough to move the monthly result substantially.
6. Reconciling reimbursements against the claims that generated them
Amazon reimburses for lost, damaged, and mishandled inventory. Those reimbursements arrive inside settlements, often long after the loss, and they are not sales.
Two things go wrong. The reimbursement gets recorded as revenue, which inflates the top line and makes gross margin look better than it is. And the corresponding inventory write-off never happens, so the balance sheet still carries units that no longer exist.
Both sides need to move. Inventory comes down for the lost units, and the reimbursement is recorded as recovery rather than sales. Sellers who track this properly also discover how much they are owed and never claimed, which is usually more than they expect.
Putting the six in order
They are not independent. Step two enables steps one, five, and six, because none of them can be done without component-level settlement data. Step four depends on having landed cost captured at receipt rather than reconstructed later.
A practical order for a seller starting from a bank-reconciliation-only close: fix settlement decomposition first, then inventory and cost of goods, then the reserve balance, then reimbursements, then refund accrual last. The first two account for most of the error in most sellers’ books.
The reserve and disbursement mechanics in particular tend to be the part that clicks last, because the money exists in three states at once and the settlement report describes all three without labeling them clearly. ConnectBooks has a walkthrough of how reserves, holds, and disbursements land in the books.
On the tax side, inventory accounting methods carry consequences that are not worth improvising. IRS Publication 538 covers accounting periods and methods, and the Small Business Administration has a plainer overview for owners who want the concepts before the detail. Anything with a filing consequence belongs in front of a CPA who works with inventory businesses.
