Freight-in refers to the shipping costs incurred by a buyer to transport goods from the supplier to the buyer's location. It is considered part of the cost of purchasing inventory and is added to the cost of goods purchased.
5 Must Know Facts For Your Next Test
Freight-in costs are recorded as part of inventory costs on the balance sheet until the goods are sold.
There are two commonly used methods for recording freight-in costs: adding them directly to inventory or treating them as a separate expense.
Under the perpetual inventory system, freight-in is added directly to the Inventory account.
Under the periodic inventory system, freight-in is debited to a separate Freight-In or Transportation-In account and later included in Cost of Goods Sold.
Accurately accounting for freight-in ensures that the cost of goods sold reflects all expenses related to acquiring inventory.
Review Questions
How are freight-in costs treated under a perpetual inventory system?
What impact do freight-in costs have on the cost of goods sold?
Why is it important to accurately record freight-in costs?