The 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 are 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 the purchase point to the destination point as agreed on by both of Buyer and seller with a specific amount. Here it’s the seller’s duty to deliver goods safely. So the risk is at the seller’s shoulder in General practice.
The risk associated with damage during delivery depends on the ownership of goods. If the Buyer purchased goods from the selling point and becomes the owner of the goods then the risk is at the buyer’s end, if the goods are damaged during delivery.
However, if goods ownership is transferred at the shipping point of the buyer then Seller will bear all costs of damage. Just like cash on the delivery system. Irrespective of 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 the 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 entries:
- Goods Purchased
- Assets Purchased
Example of Goods Purchased
XYZ co-purchased goods (Raw Materials) from Amazon for producing the shoes of $1000 and paid Carriage inward $50. Journal Entry in Daybook 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 and Paid Carriage Inwards
ABC & Sons purchased Photocopier Machine from eBay $2000 and also paid $100 freight in charges. The accounting cycle starts from the daybook to the charge of the balance sheet. That is Photocopier machine is debited with $2100 and posted the full amount in the balance sheet after posting journal entry in the daybook and ledgers.
|Dr||Photo copy Machine||$ 2000|
|Dr||Photo Copy Machine (Carriage Inwards)||$100|
Here the cost of Carriage of assets will be charged directly to the assets account. Because it is a direct cost associated with assets.
With the Help of Accounting Golden Rules with JOurnal Entries, you may get more grip on this topic.