How to Record Drop Shipment Revenue
Records revenue and associated costs for goods shipped directly from a supplier to a customer where the entity acts as principal.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Accounts Receivable | Debit | 5,000.00 | - |
| Product Revenue | Credit | - | 5,000.00 |
| Cost of Goods Sold | Debit | 3,500.00 | - |
| Accounts Payable | Credit | - | 3,500.00 |
💡 Accountant's Note
When an entity is the principal, it records the gross amount of revenue. Since inventory never enters the entity's warehouse, COGS is recorded against Accounts Payable to the supplier upon delivery confirmation.
Practitioner & Systems Framework
💻 ERP Architecture
Requires a 'Drop Ship' order type that links sales orders directly to purchase orders without hitting inventory accounts.
⚠️ Audit Flags
Mismatches between shipping dates from suppliers and revenue recognition dates in the ledger.
📄 Required Documentation
Third-party Proof of Delivery (POD) and supplier invoice reconciliation.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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