InventoryLab Webinar Recap for Ecommerce Sellers
It was such a pleasure joining Jeff Campbell of InventoryLab last week in the webinar discussing how to prepare your tax information. There were several questions from the attendees that I’m sure others have this time of year, so I’m recapping them here.
Can we use InventoryLab as an accounting tool for our accounting reporting for our taxes?
InventoryLab is a great tool for collecting your sales, direct costs, or Cost of Goods Sold and expense information that your tax professional will need. InventoryLab will pull the information directly from Amazon, and if you have additional sales channels or off Amazon warehouse space, you can add that information directly into InventoryLab. Once you have all the information recorded in InventoryLab, you can print off your Profit and Loss Statement and your Inventory Valuation reports, including Unlisted Inventory. Those reports plus your Amazon 1099 will give your tax professional a good starting point.
Do you also need QuickBooks if you have InventoryLab?
When a seller has decided to move from the hobby and testing the waters stage to wanting to operate as a business, we do recommend adding QuickBooks in addition to InventoryLab. InventoryLab does a great job tracking inventory, listing with Amazon, and reporting out performance of products and profitability directly from Amazon into the InventoryLab reports. Adding QuickBooks takes your reporting to another level because you match your activity that is reported in InventoryLab with data reported from your bank and reconciled to ensure that nothing falls through the cracks. The data you add into InventoryLab is great if you maintain it. We find that clients often set their buy cost and forget it. Over time, these costs change, and inventory valuation and Costs of Goods Sold are not reconciled back to the bank transactions where you purchased inventory. Reconciling back to bank accounts ensures that you don’t forget to keep all your data up-to-date.
Can you link InventoryLab to QuickBooks? If not, how do you suggest we enter our sales and cost of goods to QuickBooks?
InventoryLab links to Amazon but it does not link to QuickBooks. We recommend using your settlement reports to create a journal entry in QuickBooks for the deposit activity. This journal entry will show your Product Charges, refunds, fees etc. The net of the journal entry will be the deposit amount that hits your bank account.
For your Cost of Goods, you will record any purchases to an Inventory account in QuickBooks. Based on your InventoryLab report, you will do a journal entry to move the Costs of Goods from the Inventory Asset account to the Cost of Goods Sold Expense account.
Do we have to keep inventory in our accounting system, or can we just do basic COGS for a receipt? If I buy at a retail store, there are just too many different items to keep track of in inventory. How would that work?
You do not need to record all the inventory purchases in detail in your QuickBooks or Xero accounting system. InventoryLab keeps up with that beautifully, and you just want to ensure that the Inventory Valuation you are showing in InventoryLab is matching what you show in your accounting system. This is how the two systems can work together well and save you tracking the same information in multiple place.
I have a question about the book, (Profit First for Ecommerce Sellers). To split the cash for purchases (Inventory cash) how can we do it if Amazon pays us every two weeks and I don’t have the details of the COGS for that 2-week period? Should I estimate what my COGS is and apply that percentage to the total payment received from Amazon?
Yes. In making your Profit First allocation, you can look at InventoryLab to get an estimate of your COGS for the two-week period. You can either use this exact dollar amount or you can use this to create a general estimate as a percentage and multiply that percentage to your total deposit from Amazon. This will be the amount that you move into your Inventory account and use those funds for inventory purchases.
How do you section out where the income is coming from, like Etsy and eBay?
In InventoryLab, you will create an account for any additional income sources. You can create an account for Etsy and a separate account for eBay, etc. If you don’t have much income from other sources, you can create one Other Income Account and add all of those sales into the one account.
Is there a convenient way to track mileage, etc?
We like MileIQ. It is an app you can add to your phone. It logs your trips and gives you the chance to label them as personal or business. The great thing is that it learns from your categorization and over time, it will give you the opportunity to auto-classify these trips, saving you from ever having to review them. At the end of each month, MileIQ will send you a report totaling your trips and the mileage for business and personal. You can add this information into InventoryLab, and it will be included in your P&L or you can add the report to the paperwork you share with your tax professional.
It was a pleasure covering this information with those on the webinar. There were also several questions about lost, damaged, and unsellable inventory on the webinar. We’ll do a deep dive into these questions next month as we address how it should be handled from an accounting perspective and how Amazon and InventoryLab report these items.