If you sell on Amazon, you already know how to find a product, write a listing, and ship to FBA. But when it comes to your books, specifically tracking inventory and Cost of Goods Sold (COGS), most Amazon sellers are either doing it wrong, not doing it at all, or leaving it for tax season and hoping for the best.
That’s a problem. And it’s a costly one.
Here we will explain exactly what inventory tracking and COGS are, why they matter for Amazon sellers specifically, and how to record them correctly in your books, in plain English, no accounting degree required.
What Is COGS and Why Should Amazon Sellers Care?
COGS stands for Cost of Goods Sold.
It’s the total cost you paid to acquire or produce the products you actually sold during a period. Not all your inventory — just the stuff you sold.
Here’s a simple example:
You buy 100 phone cases for $5 each. That’s $500 in inventory. During the month, you sell 60 of them. Your COGS for that month = 60 × $5 = $300. The remaining 40 cases ($200) stay on your books as inventory.
Professional and Dedicated Bookkeeper in the USA
Why does this matter?
Because COGS is subtracted from your revenue to calculate gross profit.
| Description | Amount |
|---|---|
| Revenue (Sales) | $1,800 |
| COGS | -$300 |
| Gross Profit | $1,500 |
If you don’t track COGS correctly, your profit looks much higher than it really is. You’ll overpay taxes, make bad restocking decisions, and have no idea which products are actually making you money.
For Amazon sellers, especially where margins are tight and fees are everywhere, knowing your real COGS is not optional. It’s survival.
What Counts as COGS for Amazon Sellers?
This is where many sellers get confused. COGS isn’t just the price you paid your supplier. It includes every cost directly tied to getting that product ready to sell.
COGS for Amazon FBA sellers typically includes:
- Product cost — what you paid the manufacturer or supplier per unit
- Shipping to Amazon FBA warehouse — freight, courier, or shipping fees to get inventory into FBA
- Customs and import duties — if you’re importing from China or another country
- Prep and labeling costs — if you use a prep center to label, bundle, or poly-bag your items
- Amazon FBA fees — fulfillment fees per unit sold (pick, pack, ship)
- Amazon referral fees — the percentage Amazon takes on each sale (typically 8–15%)
What is NOT COGS:
- Amazon monthly subscription fee ($39.99/month) — this is an operating expense
- PPC advertising spend — this is a marketing expense
- Software tools (Helium 10, Jungle Scout) — operating expenses
- Your own salary or time — owner’s draw or salary expense
Getting this distinction right keeps your profit and loss report clean and accurate.
Explore our Federal Tax Compliance & Return Preparation
The Two Accounting Methods Amazon Sellers Use
Before tracking anything, you need to pick an accounting method. There are two:
1. Cash Basis Accounting
You record income when money hits your bank and expenses when you pay them.
Simple. Easy. But not great for inventory businesses.
Why? Because if you buy $5,000 of inventory in March but sell it in April, the cash basis shows a $5,000 expense in March (hurts profit) and no COGS in April (inflates profit). The timing is off.
2. Accrual Basis Accounting
You record income when it’s earned and expenses when they’re incurred — regardless of when cash actually moves.
This is the correct method for Amazon sellers with inventory.
With accrual accounting, your $5,000 inventory purchase sits on the balance sheet as an asset. When you sell a unit, the cost of that unit moves from inventory to COGS on your profit and loss statement. The timing matches the sale.
IRS rule: If your Amazon business has over $25 million in average annual gross receipts, accrual accounting is required by law. But even below that threshold, accrual gives you a far more accurate picture of your business.
Payroll & Sales Tax Services (USA)
How to Track Inventory in Your Books
There are three main ways Amazon sellers track inventory. Which one you use depends on your volume and how precise you want to be.
Method 1: Periodic Inventory (Simple, Good for Starters)
With periodic inventory, you don’t update your inventory records every time a sale happens. Instead, you count your inventory at the end of each period (monthly or quarterly) and calculate COGS based on what’s missing.
The formula:
Beginning Inventory
+ Purchases Made During the Period
– Ending Inventory (physical count)
= COGS
Example:
- Beginning inventory: $4,000
- Purchases this month: $2,500
- Ending inventory (counted): $3,200
- COGS = $4,000 + $2,500 – $3,200 = $3,300
This method is simple and works well for sellers with a small product catalog. The downside is that it’s not real-time, you won’t know your exact profit until you count inventory.
Method 2: Perpetual Inventory (More Accurate, Recommended)
With perpetual inventory, every sale automatically updates your inventory records and records COGS in real time.
Most modern accounting software (QuickBooks Online, Xero) supports perpetual inventory. When you set up a product and assign a cost, QBO records COGS automatically every time you log a sale.
This method gives you live visibility into:
- How much inventory do you have at any time
- Which products are selling at a profit vs. a loss
- When to reorder before you run out
For Amazon sellers with multiple SKUs or high volume, perpetual inventory is the way to go.
Method 3: Weighted Average Cost (WAC)
This method is common when you’re buying the same product at different prices across multiple purchase orders.
Instead of tracking each batch separately, you calculate an average cost per unit across all your purchases.
Example:
- First PO: 200 units at $4.00 each = $800
- Second PO: 300 units at $5.00 each = $1,500
- Total: 500 units, $2,300 total cost
- Weighted Average Cost = $2,300 ÷ 500 = $4.60 per unit
Every unit sold records COGS at $4.60, regardless of which batch it came from. Simple and practical for most private label sellers.
Setting Up Inventory and COGS in QuickBooks Online
Here’s how to set this up properly in QBO step by step.
Step 1: Turn On Inventory Tracking
- Go to Settings (gear icon) > Account and Settings
- Click Sales
- Under Products and Services, turn on Track inventory quantity on hand
- Click Save
Step 2: Create Your Products as Inventory Items
- Go to Sales > Products and Services
- Click New > Inventory
- Fill in:
- Name — your product name or SKU
- Initial quantity on hand — how many units you currently have
- Cost — your landed cost per unit (product cost + shipping + duties + prep)
- Income account — select “Sales of Product Income”
- COGS account — select “Cost of Goods Sold” (QBO creates this automatically)
- Inventory asset account — select “Inventory Asset”
- Click Save and Close
Pro Tip: Always use your landed cost as the unit cost — not just the supplier price. Your landed cost includes everything it took to get the product into FBA. This gives you accurate COGS.
Step 3: Record Inventory Purchases
Every time you place a purchase order with your supplier, record it in QBO.
- Go to + New > Bill (if you’re paying later) or Expense (if paying now)
- Select your supplier
- Under the line items, select the product you purchased
- Enter quantity and cost per unit
- QBO will automatically debit your Inventory Asset account and credit accounts payable or your bank account
Your inventory balance on the balance sheet goes up. No COGS yet, because you haven’t sold anything.
Step 4: Record Your Sales and Let QBO Calculate COGS
When you record a sale (either manually or via an integration like A2X or Webgility):
- QBO credits your Sales Revenue account
- QBO automatically debits COGS and credits Inventory Asset for the cost of the units sold
This is the power of perpetual inventory, COGS is calculated automatically, every time.
The Amazon-Specific Problem: FBA Fees and Settlements
Here’s where Amazon bookkeeping gets tricky.
Amazon doesn’t pay you in real time. They hold your money, deduct fees, and send you a settlement payout every two weeks.
That single deposit in your bank account is net of:
- Referral fees
- FBA fulfillment fees
- Storage fees
- Advertising spend
- Refunds and returns
- Any other Amazon-side deductions
The wrong way: Record the settlement deposit as income. This understates your revenue, makes fee analysis impossible, and gives you a completely distorted P&L.
The right way: Use a tool like A2X, Webgility, or Entriwise to break the settlement into its components and post them correctly to QBO:
| Transaction Type | Where It Goes in QBO |
| Product sales revenue | Sales Income |
| Amazon referral fees | COGS or Selling Expenses |
| FBA fulfillment fees | COGS or Selling Expenses |
| FBA storage fees | Operating Expenses |
| Advertising (PPC) | Marketing Expenses |
| Refunds/returns | Sales Returns and Allowances |
| Reimbursements | Other Income |
This gives you a P&L that actually tells you something useful, like which products are profitable after all Amazon fees are accounted for.
How to Calculate Your True Profit Per Unit
Once your books are set up correctly, you can calculate the profit you’re actually making on each product.
Here’s the framework every Amazon seller should know:
| Description | Amount |
|---|---|
| Selling Price | $29.99 |
| Amazon Referral Fee (15%) | -$4.50 |
| FBA Fulfillment Fee | -$3.22 |
| Product Cost (Landed) | -$8.50 |
| PPC Ad Spend (Average per Unit) | -$2.00 |
| FBA Storage (Monthly, per Unit) | -$0.30 |
| Net Profit Per Unit | $11.47 |
| Net Margin | 38% |
If you’re not tracking COGS and fees properly in your books, you cannot calculate this. And if you can’t calculate this, you don’t actually know if your Amazon business is making money.
6 Common Mistakes Amazon Sellers Make With Inventory and COGS
- Recording inventory purchases as expenses immediately. Buying inventory is not an expense, it’s an asset. It only becomes an expense (COGS) when you sell it. Expensing it immediately distorts your profit.
- Using the cash basis for an inventory business. As explained earlier, this causes major timing mismatches and results in an inaccurate P&L.
- Recording the full Amazon settlement as revenue. This hides fees, inflates revenue, and makes your books nearly useless for decision-making.
- Not tracking returned inventory. When a customer returns a product, the inventory should be returned to your books (if it’s sellable), and the COGS should reverse. Most sellers ignore this entirely.
- Forgetting FBA storage fees, long-term storage fees can quietly eat your margins. These need to be recorded as expenses every month.
- Using one account for everything, mixing COGS, operating expenses, and Amazon fees into a single “Amazon fees” account, makes it impossible to analyze your business. Use separate accounts for each category.
Tools That Make Amazon Inventory and COGS Tracking Easier
You don’t have to do all of this manually. Here are the tools most Amazon sellers use:
| Tool | What It Does |
| A2X | Connects Amazon Seller Central to QBO/Xero. Breaks settlements into components automatically. |
| Webgility | Full Amazon-to-QBO sync including inventory, orders, and fees |
| QuickBooks Online | Core accounting software with inventory tracking built in |
| Xero | Alternative to QBO, popular with USA-based sellers |
| Inventory Lab | Tracks COGS and inventory specifically for Amazon FBA sellers |
| Helium 10 (Profits tool) | Gives you a real-time profit dashboard inside Seller Central |
For most small to mid-size Amazon sellers, the combination of QuickBooks Online + A2X is the gold standard. A2X does all the heavy lifting of breaking down Amazon settlements, and QBO keeps your full books in order.
How Often Should You Update Your Books?
| Task | Frequency |
| Record new inventory purchases | Every time you place a PO |
| Reconcile Amazon settlements | Every 2 weeks (each payout) |
| Review COGS vs. revenue | Monthly |
| Physical inventory count | Quarterly |
| Full books reconciliation | Monthly |
| P&L and balance sheet review | Monthly |
The worst thing you can do is let it pile up and then try to fix 12 months of messy Amazon books at tax time. Monthly bookkeeping keeps everything manageable.
Amazon Inventory and COGS Tracking at a Glance
Here’s the full picture in one place:
- COGS = the cost of the units you actually sold (not all inventory purchased)
- Landed cost = product cost + shipping + duties + prep — always use this as your unit cost
- Use accrual accounting — not cash basis — for inventory businesses
- Set up inventory items in QBO with the correct landed cost
- Record purchase orders as inventory assets, not expenses
- Use A2X or a similar tool to break Amazon settlements into components
- Track fees separately — referral fees, FBA fees, storage fees, PPC — don’t lump them together
- Reconcile monthly and review your P&L to know your true profit per product
Don’t Want to Do This Yourself?
Amazon bookkeeping is more complex than regular small business bookkeeping, and if you get it wrong, the consequences show up at tax time, when it’s expensive to fix.
PennyWise Bookkeeping specializes in bookkeeping for Amazon FBA sellers in the USA. We set up your chart of accounts correctly, connect A2X to your QBO, track your COGS properly, and give you clean monthly financials, so you always know where your business stands.
Get in touch at pennywiseusa, we offer a free consultation to review your current books and tell you exactly what needs to be fixed.