Is freight COGS or expense?

Is freight COGS or expense?

As you describe it, the freight out is a selling expense, not a cost of the goods. COGS includes the costs incurred in getting the goods converted/purchased/manufactured to the point that they can be sold.

How do you calculate cost of goods sold for freight?

It’s a more detailed formula that includes components such as returns, freight charges, discounts, and allowances. So, the extended COG formula is: COGS = Beginning inventory + purchases + Freight In – Ending inventory – Purchase Discounts – Purchase Returns and Allowances.

Is freight in an expense?

It falls under the umbrella category of expenses and is treated like other expense accounts in relation to the accounting equation, however, under generally accepted accounting rules, if the freight is Freight expense has a normal debit balance.

Do freight charges affect cost of goods sold?

Whenever you pay for shipping out to your customer, this is not included in COGS but is a monthly expense. This expense of shipping to the customer is directly related to the sale of the product, so we include it in the Cost of Sales section and include it in the gross profit calculation.

How do you record freight-in?

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).

Is freight included in sales?

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.