Accrual accounting records revenue when earned and expenses when incurred, regardless of cash flow. Cash accounting records when money changes hands. For FBA sellers, accrual is generally recommended because Amazon's bi-weekly settlement cycle creates timing differences that can distort cash-basis financial statements.
Cash accounting records transactions when money is received or paid. Accrual accounting records revenue when earned (at point of sale) and expenses when incurred, regardless of when cash actually moves. This timing difference is significant for FBA sellers.
Accrual accounting is generally better for FBA sellers. Amazon holds your funds for approximately 14 days before settlement, meaning cash accounting would show revenue in the wrong period. Accrual matching gives you a more accurate picture of profitability.
Yes, but switching accounting methods requires filing IRS Form 3115 (Application for Change in Accounting Method). Consult with a tax professional before making this change, as it may have tax implications.
Amazon pays sellers approximately every 14 days. Under cash accounting, revenue appears when you receive the settlement, not when the sale occurred. This creates misleading financial statements, especially around settlement period boundaries and month-end.
The IRS requires accrual accounting if your business has inventory and gross receipts exceed $29 million. Smaller sellers can choose either method, but accrual typically provides more accurate financial reporting for FBA businesses.
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