How to Reconcile Your Amazon 1099K

If you sell on Amazon, you will receive a form 1099K. Upon first glance, the numbers may seem vastly inflated. FEAR NOT! I will demonstrate to you exactly how they came up with those numbers!

To make any sense of this you'll need to run a report in seller central. Go to: Reports > Payments, then click on the "Date Range Reports" tab. Request a "summary" report for the year in question (1/1 - 12/31). When it completes, open the resulting PDF file.

It will look something like this:

That looks even more confusing than the 1099K! Amazon certainly doesn't make it easy. Let me explain a few things before we get into the calculations.

Things you need to understand:

1. Amazon is technically a "credit card processing" company when it comes to their relationship with your business. If you Google "Form 1099K", you'll find that is the form used by credit card processing companies to report income to the IRS.
2. Since they are reporting as a credit card processing company, they are only reporting transactions where they've charged a customer's credit card. Refunds are not deducted from the total, so you have to account for refunds in your accounting system.
3. You can, and should, ensure the amount reported on 1099K is the properly reflected in your accounting system. It can balance down to the penny if you've done your accounting properly.

Matching 1099-K to the Date Range Summary Report

In order to match the 1099K to your Date Range Summary Report, add up the following:

• Product Sales (non FBA)
• FBA Product Sales
• Shipping Credits
• Gift Wrap Credits
• Sales tax credits (bottom right of the date range summary)

Do not add in anything from the debits column. Those will be handled in the next step. Other things you SHOULD NOT add: FBA Inventory Credits, Amazon Shipping Reimbursements. Why? Because those are internal transactions handled by Amazon. They don't involve charging a credit card, so they aren't reported on 1099-K. You will still need to account for them in your accounting system, but they aren't included in the amounts reported on form 1099K.

Take the total from the addition step above, and subtract the following:

• Promotional Rebates

If you did the calculations properly, the number showing on your calculator should match the amount reported on line 1a of form 1099K.

You can run the date range summary for each month, and run the same calculations to balance each month against the appropriate month amount on form 1099K. That will be helpful in narrowing down errors in the event your accounting system doesn't reflect the amounts reported. It's very unlikely the 1099K is wrong. Before running to Amazon about an incorrect form, make sure you haven't made an entry error somewhere along the way.

Edit 2018: It is now necessary to run the date range report on the "invoiced orders". You'll see a link from your payment summary page, just below the navigation bar. In case you missed it, let me explain the "invoiced orders". Amazon has decided to extend credit to their customers using your inventory. What happens in reality is, Amazon temporarily gives your product to their customer, and waits to pay you until the customer pays them. Don't even get me started. I'm positively livid that Mr. Bozos is leveraging my inventory to line his pockets.

Things to consider when matching the summary report to your accounting system:

• I run a medium-sized Amazon business that is almost exclusively FBA. I've used this formula for 5 years, and it always balances to the penny. Since I very rarely do merchant-fulfilled sales, there could be transactions associated with merchant-fulfilled sales that I will never see. If your numbers don't match using the instructions above, take a close look at any merchant fulfilled items on the summary report.
• It's important to keep your Amazon Payments Account balanced in your accounting system. That's the account where your payout accumulates until payout, when the funds are transferred to your company bank account. Remember: the amounts reflected on 1099K are for all transactions for the year, even those amounts building up in the Amazon Payments Account. It's very likely your Amazon payments account started the year with a balance, and will end the year with a balance. Keep the opening and closing balances in mind when you try to balance the summary against your accounting system. It is best to have a ledger account to hold the funds until payout.
• If you need help, there are some groups on Facebook which can be very helpful. I'm a member of one called "Accounting We Will Go". The group is full of other Amazon sellers who have questions. The group is setup by a CPA named Anna, but most often your questions will be answered by other members. You can also post your questions here, and I'll do my best to help. I'm not a CPA, but I've done outsourced bookkeeping for the last 12 years, and I've been an Amazon seller for the last 6 years.
• It's very important that you have a proper double-entry accounting system. GoDaddy Bookkeeping is NOT a proper double-entry system. It might be ok when you are first getting started, but it won't do once your business is big enough to require credit from a bank. Banks will want to see a balance sheet, which GoDaddy Bookkeeping doesn't provide because it isn't a proper double-entry system. I recommend Quickbooks Online. Most Amazon sellers can easily get by using just the Simple Start, which is the cheapest option. It has some limitations. For example, you can't track Accounts Payable with Simple Start, and you can't track per-item inventory. These issues are easily overcome by tracking your payables using a spreadsheet, and by only tracking the dollar cost of your inventory in a ledger asset account. Seriously. Unless you have employees or lots of bills to track, you don't need anything more than Simple Start. If you follow the Quickbooks Online link above, you will save some money and I'll get a small referral bonus.

If you have any questions, post them in the comments. I'll do my best to answer them. Keep in mind, I moderate comments before they are posted live. Good luck!