Drop Ship Question re Inventory

I'm setting up a couple of drop shippers for the first time and while doing some testing I noticed that if I canceled an order the inventory on my store increases for the item that is being dropped shipped.

Is this a normal function for my inventory to be removed or added when products are being dropped shipped or returned? I assumed that if the item was being dropped shipped it was never in my inventory so should never be adjusted.

 

Since this is only being tested right now, I used a product in my store that I already had inventory of, just changed one of the settings to show it as being dropped ship. Is it possible that if I have inventory in stock it wants to draw from that first? If so then the drop shipper would not be notified.

 

Any info on this would be helpful in my understanding. I did check the KB and forums but found nothing relating to this question.

 

Thanks.