Do you include freight cost in inventory?

Do you include freight cost in inventory?

The Internal Revenue Service says a business may include in its inventory cost all the “ordinary and necessary” expenditures of acquiring goods and getting them ready for sale. That specifically includes freight in, or the costs of delivering goods from a supplier to the business.

How do you allocate freight costs to inventory?

The amount of freight cost allocated to inventory is calculated by adding the freight amount and the prepaid freight amount. Landed cost amounts are taken directly from the Landed Cost Entry feature, available in the Receipt of Goods Entry window.

How freight costs are accounted for?

The seller will record the freight cost as a delivery expense, and it will be debited to the freight-in account and credited to accounts payable. The seller still legally owns the goods during the shipping process.

Should freight be included in cost of goods sold?

Freight is clearly a direct cost that’s associated with a product sale, so it has to be in the cost of goods sold. It doesn’t relate to the daily operations of the business, and so it shouldn’t be included in the sales department, or for that matter in the general and administrative area.

Is freight out included in cost of goods sold?

Freight out shipping costs have a direct relation to the number of goods you sell, so they’re categorized as a cost of goods sold. To record this, calculate your freight costs under the costs of goods sold section in your income statement.