In this post we want to cover two often confusing transactions you will see in your Amazon settlement files which A2X imports. The first is the Current Reserve Amount and the second is the Previous Reserve Amount Balance.
Firstly, a bit of background to these transactions. Sometimes Amazon withholds some or all of your settlement payment for various reasons. Here are some examples of where we have seen this happen:
You are a new seller with no history
Your credit card on file with Amazon is expired
There is a bank account validation problem in your Amazon Seller Account
You would not be the first seller to feel hard done by when Amazon withholds a large settlement because your credit card expired!
When this happens, your settlement amount will be reduced, sometimes to zero.
This can cause two possible scenarios when posting the data from A2X, which we will cover in this article. We will also cover our suggested approach to accounting for them, including the treatment in Xero.
Scenario A: You have a 0 balance settlement in a single month
Scenario B: You have a 0 balance settlement that spans two months
Scenario A: single settlement month, single A2X invoice
In this scenario you will have one $0 invoice, because all the transactions relate to one month. In this case there’s no action required in Xero.
A $0 invoice does not need to be paid, it just records the transactions which cancel each other out. The Current Reserve Amount should be allocated to either a suspense account or the Amazon Reserved Balances asset account in Xero. We will use the suspense account throughout our example, however, if you are using our default mapping, this line will be allocated to the Amazon Reserved Balances asset account.
When Amazon eventually releases the reserved amount, it will be shown as Previous Reserve Amount Balance which can also be coded to the suspense account (or the Amazon Reserved Balances asset account) in Xero. When this second transaction is processed, there will be both a Debit & a Credit in the suspense account, which will in effect cancel each other out.
Here's a worked example invoice for Scenario A, with greatly simplified/example line items to make the process clearer:
After this invoice, in the next period you'd expect a corresponding invoice with a Previous Reserve Amount Balance added in to it, which you also code to the suspense account.
Scenario B: settlement covers two months, two A2X invoices
In this scenario, you will have two invoices for equal and opposite amounts, so that the total cancels out to a 0 balance settlement. In this case it happens when there’s a month boundary in the zero balance settlement period.
Below is a worked example invoice for Scenario B, with greatly simplified/example line items to make the process clearer. In this example you have an Invoice and a Bill created in Xero (by A2X) due to the $0 net Amazon Settlement.
1. The invoice for $4043.31 is allocated to normal sales/expense accounts as usual.
2. The reserve amount on the bill ($4043.31) gets allocated to the Amazon Reserved Balances asset account.
Please Note: Sometimes there will be other transactions on the second invoice period for the Bill. The other scenario you may see is where Amazon withholds a portion of your settlement, but not all of it. In this case the Reserve amount will not completely zero out the settlement, and will be paid forward into the next settlement.
The invoice and bill in Xero need to be offset against each other, so that you do not have a payable and receivable amount sitting in Xero unreconciled.
There are numerous ways this can be achieved in Xero, however, our recommendation would be to enter manual payments against both the Bill and the Invoice in Xero. Instead of using a bank account that you would normally make/receive payments from, you would use a Suspense account, so that the two payments cancel each other out. An example of this is provided below.
When the next settlement comes in, it should be containing the reserve amount which is allocated as follows:
Please Note: The settlement above also contains other sales/fees on top of the ‘Reserved’ amount and this is ok, it is only the reserve amount we need to allocate to the reserve account.
The above step cancels the amount out of the suspense account.
The above is our general advice on how to handle the two different scenarios where Amazon reserves some (or all) of your settlement payment. The key is to use the suspense and/or Amazon Reserve Balances account as a temporary holding account which will eventually net out to zero.
The other trick is to use the payments to and from the suspense account and mark invoices and bills as paid, if they reflect zero balance settlement periods. This should be done because there is no bank transaction to reconcile against (in Xero) when the overall settlement is $0.
Hint: If you are in chat and wish to view the article outside of the chat window, please click HERE