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How to account for Print on Demand sales

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Hi there

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.


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By tom123
22nd Aug 2020 18:37

But who did the design work - if 'you' are the designer, and the customer is ordering via your website then you cannot be an agent, surely?

(watching thread with interest as my wife is a graphic designer and looking at moving to print on demand - in our case the product is very much 'hers' even if she never sees it.

VAT is also a consideration for us)

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By paul.benny
23rd Aug 2020 08:59

This is no different from drop-shipping. You’re being confused by the make-to-order nature of the product.

You should be accounting for VAT on the selling price to the customer. I don’t understand your reference to being ‘partially recoverable business’. Do you mean partial exemption? That’s the only usual reason for restricting input tax recovery. Even so, your partial exemption calculation should allow direct attribution of input tax against outputs.

@Tom123 – your wife’s sales are just normal transactions for VAT. It’s irrelevant that some aspects are subcontracted.

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By ngaccounts
23rd Aug 2020 09:22

Sounds like its you who are transacting with the customer & therefore the dropshipper in this scenario is merely a supplier to you. The fact they send the item direct to the customer is a bit of a red herring.

Confusingly though, you state you take the customers money at the point of sale but if there is a refund situation, you direct them to the supplier/dropshipper. Why would they provide the refund if its you've who've originally taken the money?

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By Jiggler69
24th Aug 2020 09:03

Thanks @tom123, @paul.benny and @ngaccounts.

Reading your responses, on reflection i feel you guys may be right. I think i have over complicated the issue based on the 'made to order' element.

@ngaccounts, the refund situation is because the item is 'customised' there are no refunds unless the item is faulty. So if the item is faulty, the supplier is required to deal directly with the issue - usually providing a replacement. I am no expert on consumer law so cannot say whether the 'no refunds' thing is right or wrong; that's just how it is currently working.

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