Most e-commerce sellers don’t realize their books are wrong until tax time — or worse, until they try to sell their business and the numbers don’t hold up to due diligence.
After cleaning up books for dozens of Amazon and Shopify brands, these are the mistakes I see over and over again.
1. Recording Amazon Deposits as Revenue
This is the most common mistake and it wrecks everything downstream.
Amazon deposits money into your bank account every two weeks. That deposit is not your revenue. It’s revenue minus fees, refunds, advertising costs, and a dozen other transaction types all netted together.
If you book that deposit as sales, your revenue is understated. If you then book fees separately from your credit card or by estimating, you’re double-counting expenses. Your P&L is fiction.
The fix: Use a connector like A2X or Link My Books to break out Amazon settlements into proper accounting categories. Every transaction type gets its own line item.
2. Using Average Cost for Inventory
Average cost inventory valuation is simple. It’s also hiding margin erosion from you.
Here’s the problem: when your costs fluctuate — and they always do with shipping rates, supplier prices, and tariffs — average costing blends everything together. You can’t see which batches are profitable and which are killing you.
A product might look like it has 30% margins based on average cost, but your most recent shipment actually has 18% margins because freight rates doubled. You won’t know until that inventory sells and your overall margins mysteriously drop.
The fix: Use FIFO (First In, First Out) with landed cost tracking. Yes, it’s more work. It’s also the only way to see real margins and make good purchasing decisions.
3. Not Tracking Landed Costs Properly
Your product cost isn’t what you pay your supplier. It’s what you pay to get that product ready to sell — supplier cost plus freight, duties, customs fees, inspection costs, and any other expenses incurred before the product reaches Amazon or your warehouse.
Many sellers track supplier invoices but leave freight and duties as separate expenses. This understates COGS and overstates gross margin. You think you’re making more money than you are.
The fix: Build landed cost into your inventory value. When a shipment arrives, total all costs associated with that shipment and allocate them across the units received.
4. Ignoring Accrual Accounting
Cash basis accounting records revenue when you receive money and expenses when you pay them. It’s simple and it lies to you.
If you order $50K of inventory in December and pay for it in December, but don’t sell it until January through March, cash basis shows a terrible December and artificially profitable Q1. Your P&L doesn’t reflect operational reality.
E-commerce businesses need accrual accounting. Revenue when earned, expenses when incurred. It’s the only way to match costs with the revenue they generate.
The fix: If you’re doing your own books, at minimum use accrual for inventory and COGS. Work with an accountant to set up proper accrual for payables and other timing differences.
5. Misclassifying Advertising Spend
Where does your Amazon PPC spend show up on your P&L? If it’s under “Advertising” in operating expenses, you’re not seeing your true product margins.
For most e-commerce businesses, advertising is a cost of generating sales — it belongs in cost of goods sold or as a direct offset to revenue. When it’s buried in operating expenses, your gross margin looks better than reality.
This matters when you’re analyzing product profitability. A SKU might look like it has 40% gross margin, but if you’re spending 15% of revenue on PPC to sell it, true contribution margin is 25%.
The fix: Track advertising spend by channel and include it in your contribution margin calculations. Your P&L format might show it separately, but your internal analysis should account for it as a cost of sales.
6. Not Reconciling Inventory
Your books say you have $200K in inventory. Amazon says you have 5,000 units in FBA. Your 3PL says 2,000 units in their warehouse. Do these numbers actually match?
Inventory discrepancies grow over time. Lost shipments, miscounts, damaged goods, Amazon adjustments — they all create drift between your book value and physical reality. If you’re not reconciling regularly, your balance sheet is wrong and your COGS calculations are based on bad data.
The fix: Reconcile inventory monthly. Match your book units and values to physical counts or system reports. Investigate discrepancies immediately.
7. DIY Books Past the Point of Competence
A lot of sellers start doing their own books in a spreadsheet or basic QuickBooks setup. That’s fine at $200K in revenue.
At $1M+, the complexity exceeds what most people can handle correctly while also running their business. Multi-channel sales, inventory across multiple warehouses, international suppliers, sales tax in multiple states — something will fall through the cracks.
The cost of bad books isn’t just the time you spend fixing them. It’s the bad decisions you make based on bad data. Buying inventory you shouldn’t. Continuing to sell products that are actually losing money. Overpaying taxes or underpaying and facing penalties later.
The fix: Know when to hand off. If you’re spending more than a few hours a month on books, or if you’re regularly unsure whether your numbers are right, it’s time to work with someone who does this full time.
How to Know If Your Books Are Wrong
A few warning signs:
- Your bank balance doesn’t match what you expected based on your P&L
- Gross margin fluctuates wildly month to month for no clear reason
- You can’t explain where the cash went
- Inventory value keeps growing even though sales are flat
- Your accountant asks basic questions about your business that the books should answer
If any of these sound familiar, don’t wait until tax time to sort it out. The longer bad books compound, the more expensive the cleanup.
We keep your books reconciled, reviewed, and consistently up to date, so you can see your profit after platform fees, ad spend, and the cost of inventory sold.
