Carriage Inwards and Freight In
Table of Contents
What is Carriage inward or Freight in?
Transportation cost of goods from one place to another place is called freight in or Carriage inwards, which is paid by the buyer. In Accounting it is a direct cost. If goods purchased then it will be charged to goods in the trading account and if assets are purchased then I will be included in the cost of assets.
Carriage inward or freight in is the cost of delivery from purchase point to the destination point as agreed on both of Buyer and seller with a specific amount. Here its seller duty to deliver to goods with safety. So the risk is at seller’s shoulder in General practice.
The risk associated with damage during delivery depends on the ownership of goods. If Buyer purchased goods from selling point and become the owner of the goods then the risk is at buyer end, if goods damaged during delivery.
However, if goods ownership transferred at the shipping point of the buyer then Seller will bear all cost of damage. Just like cash on delivery system. Irrespective the risk associated with the buyer or seller, it will be directly charged to the goods/assets.
What is the Carriage inwards journal entry?
As mentioned above carriage inward is direct cost so charged to the account directly instead of operating expense? Only carriage outwards is treated as operating expenses.
There are two types of journal entry:
- Goods Purchased
- Assets Purchased
Example of Goods Purchased
XYZ and co-purchased goods (Raw Material) from Amazon for producing the shoes of $1000 and paid Carriage inward $50. Journal Entry in Day book will be Debit Purchases $1000, Debit Carriage inward $50 and Cash credit with $1050.Then after posting in ledgers, they will charge to the trading account (Purchases & Carriage Inwards) and balance sheet (cash).
Here for clarity and report analysis Carriage inwards is shown separately in the trading account.
Example of Assets Purchased
ABC & Sons purchased Photocopier Machine from eBay $2000 and also paid $100 freight in charges. The accounting cycle starts from day book to the charge of the balance sheet. That is Photocopier machine is debited with $2100 and posted full amount in balance sheet after posting journal entry in day book and ledgers.