I am an accountant for a retailer. The business engages in some "drop-ship" transactions which i account for with no issues. PO raised, supplier's invoice comes in, charge to COGS. With these transactions, we deal with the customer with regard to returns and there is a 'committment to buy' from us to the supplier; hence the purchase order.
However, the business have just started Print On Demand; POD, and i am not sure if the accounting treatment is the same even though I have been told by some that it is the same.
With POD, no purchase orders are raised. On the supplier's website, it says that all inventory is their property until it is in the possession of the customer.
The customer visits my company's website and places an order for a POD item. We take the customer's money. As you know, this item does not yet exist. Once the order is placed, we electronically notify the supplier of the order. The supplier then creates the item at that point and then ships it direct to the customer. If there is a refund situation, we direct the customer to the supplier and do not act as go-between or interact with the customer for this.
This seems to me like a situation where we are an agent; introducing the customer to an 'invisible' third party. As such should the proportion of the money taken from the customer, that relates to the cost and P&P to be charged by the supplier, not go to Amounts on Account on the balance sheet? Then, when the supplier invoices, payment then comes out of amounts on account? The difference thus being a commission, rather than gross margin on the sale of a product?
Consequently, shouldnt our Output VAT only be on the commission element rather than the full sale value from the customer? The amount of Output VAT and Input VAT accounted for is significant for us because we are a partially recoverable business.
Would appreciate any thoughts on this.