Should freight be included in inventory cost?

Should freight be included in inventory cost?

Freight-in is considered to be part of the cost of the merchandise and should be included in inventory if the merchandise has not been sold.

Can you capitalize freight costs to inventory?

As a result, material costs, freight, duty, etc. should all be reflected in the cost of the company’s acquired inventory. Therefore, these increased freight costs should be capitalized into the cost of inventory subject to certain exceptions, as discussed below.

How are freight costs 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.

How do you add freight to inventory?

First, create a payment or purchase invoice for the freight-in supplier. Post the freight-in amount to Freight clearing or a similarly named balance sheet account. Second, reopen the original purchase invoice on which affected inventory items were purchased. Add two line items to it.

Should you capitalize freight costs?

Cost includes all expenditures directly related to the acquisition or construction of and the preparations for its intended use. Such costs as freight, sales tax, transportation, and installation should be capitalized.