How to Record a Drop-Shipment Where the Supplier Ships Directly to the Customer
Recording a sale where no inventory is held — the supplier ships directly to the customer and revenue and COGS are recognized simultaneously.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash / Accounts Receivable | Asset (+) | 232.00 | - |
| Sales Revenue | Revenue (+) | - | 200.00 |
| VAT Output Tax Payable (16%) | Liability (+) | - | 32.00 |
| Cost of Goods Sold (Drop-Ship) | Expense (+) | 120.00 | - |
| Accounts Payable (Supplier) | Liability (+) | - | 120.00 |
💡 Accountant's Note
In dropshipping, no inventory asset is ever created. Revenue and COGS are recognized simultaneously at the time of the customer order.
Practitioner & Systems Framework
💻 ERP Architecture
In a dropship model, the ERP must link the customer sales order to a purchase order raised against the drop-ship supplier. When the supplier confirms dispatch, both the revenue (customer order) and the COGS/payable (supplier PO) are posted simultaneously. No inventory account is touched. Track dropship orders separately to measure the dropship channel margin vs. direct inventory margin.
⚠️ Audit Flags
The principal vs. agent analysis is critical in dropshipping — if the store genuinely controls the goods and bears inventory risk (even briefly), it is the principal and gross revenue is correct. If the store is merely facilitating a transaction without bearing risk, it may be an agent (commission revenue only). Auditors will review the dropship agreement to determine the correct presentation.
📄 Required Documentation
Customer order confirmation, supplier drop-ship purchase order, supplier dispatch confirmation, delivery confirmation to customer, sales invoice to customer, supplier invoice received, IFRS 15 principal vs. agent assessment, and dropship channel margin report.
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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.