How is freight-in and freight-out treated in the financial statements?
The key difference to understand is that freight-in is incurred to ship materials to the company’s production facility. Freight-in is part of the production process and will be capitalized into inventory and expensed through cost of goods sold when the product is sold. Freight-in is the cost incurred to ship finished goods to a distributor or retailer. Freight-out is considered a selling expense and is expensed when incurred.
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What costs are included in costs of good sold?
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What is the journal entry to record freight-in?
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What costs are included in costs of good sold?
Cost of goods sold doesn’t have a strict definition, but would generally include any cost incurred to produce a good or deliver a service. Another way to think about a cost of goods sold is whether or not you would incur that cost if you stopped selling a good or service. Cost of goods sold...
What is the journal entry to record freight-out?
Freight-out is considered a selling expense and is expensed when incurred. When a company hires a 3rd party transportation company to transport inventory to a customer, the company would debit freight-out expense (selling expense) and credit cash (cash outflow to pay shipping company). Alternatively, the credit would be to accounts payable if they paid on...
What is the journal entry to record freight-in?
Freight-in is capitalized onto the balance sheet since it’s considered a production cost. Therefore, when freight-in is incurred, the company would debit inventory (freight-in) and credit cash (cash outflow to pay the expense). Freight-in only flows through cost of goods sold when inventory is sold and revenue is recognized.
