How to categorize drop-shipping

[Daniel_284]

Hi there,

I have a Schedule C sole proprietor business with a web shop. 

Let's say I sell a $500 music instrument & receive payment - then another business fulfills the order and I pay them $400. It's drop-shipped - They have inventory, but I never touch the goods.

Is it correct for me to:

- Report $500 income

- Deduct $400 expense

What category should this expense go in? "Drop-shipped musical instruments"... Something generic like "Other" or "Supplies"?

Thanks,

-Daniel

[Bsch4477 · Accepted solution]

Report $500 in income and $400 expense for supplies. 

[Carl]

YOu can if you want, report your costs for material goods in the Cost of Goods Sold/Inventory section. I do that, because it just makes the book keeping easier on me. But if you want, you can just report it as a supplies expense, since it's not like you have any left over "inventory" to deal with at the end of the year.

[Mike9241]

or use the misc category and title it shipping or postage and shipping.