A dropshipped order has no inventory to relieve. Its cost of goods sold is the supplier's invoice for that order, and the entry is a debit to COGS and a credit to accounts payable. A fulfilled-from-stock order relieves inventory under FIFO, and the entry is a debit to COGS and a credit to inventory. A seller running both through one catalog needs both paths, kept apart, because the timing, the source document, and the balance sheet effect are different for each. Mix them and the month's margin depends on which supplier invoices happened to arrive before the close.
Ordoro is ecommerce operations software. Per ordoro.com, it is offered as three apps, shipping, inventory, and dropshipping, that a merchant can use one at a time or together, and the dropshipping app routes orders to suppliers without manual handling. ConnectBooks connects Ordoro data to QuickBooks or Xero. A seller with dropshipped SKUs routed through Ordoro and stocked SKUs shipped from a warehouse is the case this article works through.
A stocked SKU was bought on a purchase order, received into a warehouse, and sat on the balance sheet as inventory at its landed cost until it sold. When it sells, the ledger moves the FIFO cost of the units out of inventory and into COGS. The source document is the sale. The timing is the ship date. Cash left the business weeks or months earlier when the PO was paid, and that payment had no P&L effect at the time; it was an asset swap, cash for inventory. The PO-to-payables side of that, including what to do with freight and duty, is covered in purchase orders to payables.
A dropshipped SKU was never bought until it sold. The customer orders, the order routes to the supplier, the supplier ships to the customer and invoices the seller. There is no inventory, no receipt, no FIFO layer. The cost is whatever the supplier charged for that unit, plus the supplier's shipping if they bill it, and it belongs in COGS for the period of the sale.
The complication is that the supplier's invoice is the source document, and it does not arrive on the sale date. A sale on October 28 might be invoiced on November 3. If COGS is booked when invoices arrive, October carries the revenue and November carries the cost. That is the timing problem, and the fix is an accrual: at month end, cost every dropshipped unit sold in October that has not yet been invoiced, at the supplier's agreed price, and reverse the accrual when the invoice lands.
Illustrative numbers. Take a seller with a mixed catalog, October.
Stocked SKUs
Dropshipped SKUs
Booked with the accrual
October COGS is $31,200 from inventory plus $19,800 for dropship, $16,500 of it against invoices and $3,300 accrued. Total COGS $51,000. Revenue $125,300. Gross profit $74,300, or 59.3 percent.
Dropship margin on its own: $36,900 minus $19,800 is $17,100, or 46.3 percent. Stocked margin: $88,400 minus $31,200 is $57,200, or 64.7 percent.
Booked on invoice date, no accrual
October COGS is $31,200 plus $16,500, or $47,700. Gross profit $77,600, or 61.9 percent. Dropship margin shows as $36,900 minus $16,500, or $20,400, a 55.3 percent margin that the business never earned. November then absorbs the $3,300 and dropship margin drops 9 points for no reason anyone can see.
The difference in the blended figure is 2.6 points. The difference in the dropship channel figure is 9 points. A seller deciding whether to expand the dropship catalog on the basis of a 55 percent margin is making the decision on a timing error.
The stocked path needs units shipped by SKU by period, so the ledger can relieve the right FIFO layers. It does not need the supplier price, because the cost is already in inventory.
The dropshipped path needs units shipped by SKU by period and the supplier's price for each, because the cost is not anywhere else yet. Ordoro's dropshipping app holds the supplier assignment and the routed order, which is the data the accrual is built from. At month end, the 150 uninvoiced units are the routed orders with no matching bill.
Both paths need the sale's date, not the supplier's, to be the period driver.
Dropship SKUs with a stock quantity. An operations system that treats every SKU as stocked will show dropship SKUs at zero on hand and flag them for reorder. Worse, a seller who enters a placeholder quantity to silence the alert now has phantom inventory on the books. Dropship SKUs should be marked as such and excluded from on-hand reporting and from inventory valuation.
Supplier freight booked as an operating expense. When the dropship supplier bills $22.00 for the unit and $4.10 to ship it to the customer, both are costs of that sale. Booking the $4.10 to a shipping expense line below gross profit makes the dropship channel look 10 points better at the gross line than it is, on the $41.00 average selling price in the example above.
Returns on dropshipped units. A customer returns a dropshipped item and it lands at your warehouse, not the supplier's. You now hold a unit that was never on a PO and never in inventory. Receive it at the supplier's cost from the original invoice, so it carries a FIFO layer, and reverse the COGS for that sale. If the supplier takes the return and issues a credit, the credit reduces dropship COGS in the period received. Either way, the unit needs a cost before it can be resold, or its second sale will post revenue with nothing against it.
One COGS account for both. Stocked COGS and dropship COGS answer to different documents and reconcile to different balances. Stocked COGS reconciles to the inventory roll-forward. Dropship COGS reconciles to supplier bills plus the accrual. Put them in separate accounts, or at least separate classes, or the month-end tie-out becomes a single number that cannot be checked against anything.
ConnectBooks reconciles marketplace settlements into QuickBooks or Xero at the transaction level and relieves FIFO COGS for stocked SKUs from inventory it tracks by warehouse. Ordoro data connects to it so the fulfilled orders and the dropshipped orders arrive in the same books, in the same period, and can be told apart.
Two paths. Two source documents. One month. Keep them separate, accrue the uninvoiced units, and the dropship margin you see in November will be the one you had in October.
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