The goal for any Amazon seller is to be profitable so that Amazon pays you money. However there are some situations where you owe Amazon money, and in this article, we talk about the different scenarios when that happens and how to account for them.
The accounting for Payable to Amazon amounts and Successful Charge transactions (for both Amazon Marketplace and Amazon Pay) can be tricky but once you understand the process it all falls into place well. This article explains the process of accounting for these transactions by looking at two examples.
The two examples below cover both possible options when you owe Amazon.
If the amount is significant, Amazon will charge your credit card immediately for what you owe them.
If the amount is small, they will simply carry over the debt into the next settlement, and charge you for the amount you owe from the proceeds of your next settlement.
First a quick explanation about the transactions involved. The simplest explanation is that you can have up to three transaction/s to deal with:
The actual entry contains all the sales/fee data that overall equals the payable amount.
A 'Payable to Amazon' transaction line within a settlement or a single settlement only contains the 'Payable to Amazon' line.
A 'Successful Charge' transaction line within a settlement or a single settlement only contains the 'Successful Charge' line. (This line is applicable only when the charge is made via your credit card)
Example 1 - Amazon Charges the Payable Amount to your Credit Card
A new seller for instance may have a period when starting where the first settlements or the only settlements in the account are just to cover the monthly Seller Central account subscription fee:
We can see the first settlement in the A2X account covers the period March 13 through to March 27 and has a total of -$39.99.
The March subscription fee was included in this settlement period. As you can see below, this is the actual expense entry side of the charge: Subscription (other-transaction). This side of the entry is the one that will be allocated to the Subscription fee or Amazon Seller Fees and Charges expense account as shown below:
Between this point and your next settlement arriving you will see the charge come through on your Credit Card bank feed in Xero/QuickBooks Online. You can now reconcile this charge to the entry made above, i.e. match the charge on the card to the settlement entry above containing the expense line.
The next settlement covers the period 27 Mar to 10 April and the April portion of the settlement includes the details of the charge to your credit card.
In your settlement, you will see a 'Payable to Amazon' line and a 'Successful charge' line.
Because we have already matched the credit card charge to the expense entry we can simply allocate the Payable to Amazon and Successful charge lines to either a clearing or suspense account because they will net each other out to Zero. But in doing so, we have still kept the audit trail as per the settlement issue but we have easily dealt with the three lines for the one charge.
The April portion of the above settlement (which is the April subscription fee), will be allocated to the expense account to start the process again.
Now that all works well if the charge is a straight deduction from your credit card and to summarise it, it works like this:
Expense account entry for the subscription fee that gets reconciled against the charge on the credit card.
Debit and Credit entry to a clearing or suspense account to allocate the Payable to Amazon and Successful charge lines.
What happens when Amazon deducts the payable amount from your next settlement?
This is dealt with a little differently as shown below.
Example 2 - Amazon deducts the Payable Amount from your next Settlement
So we start with a settlement that covers the period 7 Feb through to 21 Feb.
The total of this settlement was negative therefore you owe Amazon money for that settlement period (39.99) as shown below:
Rather than charge your credit card this time, Amazon knows you have sales going through your account therefore you should be able to cover the fee as a deduction from your next settlement.
So your credit card is not charged the $39.99.
This time, instead of seeing both the 'Payable to Amazon' and the 'Successful Charge' line in the next settlement we will only see the 'Payable to Amazon' line as shown below:
For Amazon Pay, the transactions will be listed as AmazonPay-PayableToAmazon and AmazonPay-SuccessfulCharge:
So how is this all accounted for in Xero or QuickBooks Online?
The simplest way is to create a bank clearing account in your accounting system. This allows you to allocate the payment of the original payable entry and also the Payable to Amazon line on the next settlement.
Here's where it gets a little tricky and there are two methods - one for Xero and one for QuickBooks Online.
In Xero you will do two steps:
You will manually mark the bill as paid in Xero by allocating the payment to the bank clearing account (if you open the bill you will see at the bottom where you can allocate a manual payment - the bank account you select here will be the bank clearing account).
You will allocate the 'Payable to Amazon' line in the next settlement to the same bank clearing account which will mean the clearing account will contain a debit and a credit for the same amount netting the balance of the clearing account back to Zero.
In QuickBooks Online you will also do two steps:
You will change the bank line in the A2X journal entry to the bank clearing account (if you open the journal you will see at the bottom the bank line - the bank account you select here will be the bank clearing account).
You will allocate the 'Payable to Amazon' line in the next settlement to the same bank clearing account which will mean the clearing account will contain a debit and a credit for the same amount netting the balance of the clearing account back to Zero.
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