Year-end is when most Amazon sellers find out whether their bookkeeping has been accurate all year. The number that matters more than any other is your ending inventory. Get it wrong and your cost of goods sold is wrong, which means your profit is wrong, which means your tax bill is wrong. This guide is the year-end inventory process we walk every Canadian Amazon seller client through, with the right Amazon report to pull, the valuation rules CRA actually uses, and the four places inventory can hide.
This applies whether you are a sole proprietor or an incorporated seller. The mechanics are the same.
Inventory vs cost of goods sold (the part most sellers get wrong)
Inventory is an asset. It sits on the balance sheet until it sells. Cost of goods sold (COGS) is an expense. It only hits the income statement when the inventory leaves the warehouse and the sale is recorded. Buying $50,000 of stock on December 28 does not reduce your taxable profit. Only the units that sold by December 31 reduce profit.
The formula every Amazon seller should know by heart:
That single equation is why year-end inventory is so important. It is the closing variable that determines how much of your purchases for the year actually count as a current-year expense. Get it wrong and your COGS, your gross profit, and your taxable income are all wrong.
Simple worked example
Two years of an Amazon seller in numbers
Year 1. You start with $0 inventory. You buy $1,000 of product. You end the year with $200 still on the shelf.
Year 2. You start with the $200 carried over. You buy $2,000 more. You end with $100 still on the shelf.
Notice the opening inventory in year 2 is the closing inventory from year 1. Get year 1 wrong and you carry that error into year 2 automatically. CRA can reassess up to six years back.
The four places your inventory might be hiding
An accurate year-end count means adding up everything you own that has not yet been sold, regardless of where it physically sits. For an Amazon seller, that means checking four locations:
| Location | How to count it |
|---|---|
| 1. Home, garage, or office | Physical count. Count units by SKU. Multiply by landed cost. |
| 2. Third-party warehouse / 3PL | Request a stock report from your 3PL dated on or about your year-end. Most provide one on request. |
| 3. In transit (paid for, not yet received) | Includes goods on the water from your supplier and goods in transit to Amazon. If you have already paid the supplier or carrier and the title has transferred to you, it counts as your inventory. |
| 4. Held at Amazon FBA | Use the Amazon Inventory Ledger report (instructions below). |
How to pull the Amazon Inventory Ledger report
Amazon retired several older inventory reports a few years back. The current source of truth is the Inventory Ledger. Find it here:
- Log in to Seller Central.
- Go to Reports > Fulfillment.
- Under the Inventory section, choose Inventory Ledger.
- Set the view to Summary View.
- Group by Country Location.
- Choose Daily Report.
- Select the exact date of your year-end (most calendar-year businesses pick December 31).
- Download as CSV.
Wait a day or two after the year-end date before running the report. Amazon needs time to settle the day’s inventory movements before the daily snapshot is final.
From the downloaded report, you want two columns:
- Ending Warehouse: units physically at the Amazon fulfillment centre on your year-end date.
- In Transit Between Warehouse: units Amazon is moving between its own facilities.
Add those two together for each SKU. The “Ending Warehouse” total does not include the in-transit-between-warehouse units, so you must include both to capture everything Amazon is holding for you.
Valuing the inventory: lower of cost or market
Once you have the unit counts, you need a dollar value. The CRA rule is lower of cost or market: each item is valued at the lower of what you paid for it (landed cost) or what you could sell it for today.
Worked example: a dud SKU on the shelf
You paid $50 per unit for a product. You have 100 units left at year-end. The category has changed and you now estimate you could only sell each remaining unit for $20.
Market basis ………. $20 × 100 = $2,000
Year-end value (LCM) .. $2,000
You write the SKU down from $5,000 to $2,000. That $3,000 reduction increases your COGS for the year and lowers your taxable profit.
Landed cost should include everything it took to land the unit in your inventory: the supplier invoice, freight in, customs duties, brokerage, and inbound shipping. If you have been using just the supplier invoice as your cost, you are understating inventory and overstating COGS, which is the opposite of where most sellers want to be.
Damaged, defective, and unsellable units
The Inventory Ledger shows units by disposition status. Anything that is not “Sellable” deserves a hard look:
- Customer Damaged: returned by a customer, not resellable as new. Value at zero or at what you could actually liquidate for.
- Warehouse Damaged: Amazon damaged the unit. You should already have a reimbursement claim open. If reimbursed, the unit comes out of inventory at the reimbursement value. If not reimbursed, value at zero.
- Defective: cannot be sold. Value at zero unless you have a liquidation channel.
- Stranded or Suppressed: listed for sale but not currently visible. If the listing is recoverable, value at lower of cost or estimated market. If it has been suppressed for months with no path back, treat as defective.
Writing units down to zero or to a low market value increases your COGS, lowers your taxable profit, and gets you a real refund in cash terms. It is one of the highest-value parts of the year-end exercise and the most often skipped.
Sellerboard, A2X, and other tools
If you use Sellerboard, the inventory work is faster. Under Profit > Reports > Stock History Report, set the year-end date and download the report. The output includes both units and a dollar value column. Multiply, adjust for damages and lower-of-cost-or-market, and you have your number.
A2X, Taxomate, and other Amazon accounting middleware can also produce a year-end snapshot, but the figures should always be reconciled back to the Amazon Inventory Ledger as the primary source. The middleware is a convenience, not a substitute, for CRA defence purposes.
What not to do
These are the mistakes that get caught when CRA looks at your COGS calculation. Each one shifts the year-end value, which shifts COGS, which shifts taxable profit.
- Counting only what is at home. Amazon FBA inventory often exceeds home inventory by 5x or more. Missing it understates inventory and inflates COGS.
- Skipping in-transit goods. Containers on the water still belong to you if you have paid and title has passed. They go in inventory.
- Forgetting the in-transit-between-warehouse units. Amazon moves stock between fulfillment centres constantly. Those units belong to you and the Inventory Ledger lists them separately from the warehouse total.
- Valuing only at supplier cost. Landed cost includes freight, duties, brokerage, and inbound. Underestimating cost inflates COGS in the current year and creates a timing problem when the units actually sell.
- Ignoring damaged or stranded units. You leave real cash on the table by not writing these down to their actual market value.
- Pulling the report too early. Run the Inventory Ledger at least 24 to 48 hours after your year-end so the daily snapshot has settled.
- Using a different number than last year’s ending inventory. Your opening inventory this year must equal your closing inventory last year. Mismatches scream at CRA.
Frequently asked questions
What inventory valuation method does CRA accept for Amazon sellers?
The CRA accepts either lower of cost or market valued item-by-item, or fair market value of the entire inventory at year-end. The most common method for Amazon sellers is lower of cost or market on an item-by-item (SKU-by-SKU) basis. See the CRA’s guidance on inventory and cost of goods sold.
Where do I find my Amazon year-end inventory report?
Seller Central > Reports > Fulfillment > Inventory Ledger. Choose Summary View, group by Country Location, set Daily Report, pick your year-end date, and download as CSV. Wait at least 24 hours after your year-end before pulling the report so the daily snapshot is final.
Do I include in-transit inventory in my year-end count?
Yes, if you have paid for it and legal title has transferred to you. That includes containers on the water from your supplier (depending on shipping terms), units in transit to Amazon, and units Amazon is moving between fulfillment centres on the year-end date.
How do I value inventory that is damaged or unsellable?
Value at zero, or at the realistic liquidation value if you have a channel to sell it. Customer Damaged, Warehouse Damaged, Defective, and long-stranded units almost always qualify for a write-down. The write-down increases your COGS and reduces taxable profit in the year you take it.
What is landed cost and do I have to use it?
Landed cost is everything it took to get the unit into your inventory: the supplier invoice price plus inbound freight, customs duties, brokerage, and shipping into Amazon. Using only the supplier invoice price understates your inventory and overstates your COGS in the year of purchase, which creates timing errors that get caught at audit.
Can I expense inventory I buy at year-end to lower my tax bill?
No. Buying inventory at year-end does not lower current-year profit. Inventory is an asset until it sells. Only the units that left the warehouse and were sold during the year hit your COGS. This is the single most common misconception we correct in November and December conversations with sellers.
What if I am also paying GST/HST on the units?
If you are a GST/HST registrant, the GST you pay on inventory purchases is recoverable as an input tax credit on your GST return. It should not be in your landed cost calculation because you are getting it back. See our guide on how Amazon collects and remits GST/HST and the related post on why FBA inventory in Canada triggers GST/HST registration for non-residents.
What if my numbers do not match between Amazon, Sellerboard, and my bookkeeping?
Reconcile back to the Amazon Inventory Ledger. It is the primary source of truth that CRA will rely on if they ever audit. Middleware tools (Sellerboard, A2X, Taxomate) are convenient but must agree with the Amazon source data before they are usable for CRA purposes.
Want us to handle year-end inventory for you?
Year-end inventory is one of the parts of Amazon bookkeeping that goes from “small annoyance” to “five-figure tax decision” very quickly. We do the full year-end close for our e-commerce bookkeeping clients: the Amazon Inventory Ledger pull, in-transit reconciliation, lower-of-cost-or-market valuation, damaged-unit write-downs, and the COGS adjustment in QuickBooks Online.
Get in touch with a short note about how many SKUs you carry, whether you are FBA Canada, FBA US, or both, and your year-end date. We respond within one business day with a fixed-fee quote. Full pricing on the pricing page.
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