Invoice Price

Definition

The invoice price refers to the total cost of an item or good charged by the seller to the buyer, including any applicable freight or shipping charges. It is a crucial component in understanding and recording transactions related to the two commonly used freight-in methods.

5 Must Know Facts For Your Next Test

1. The invoice price is the starting point for calculating the landed cost of an item or good, which is the total cost to the buyer.
2. Freight-in charges are added to the invoice price to determine the landed cost, which is the amount recorded as the cost of the item or good.
3. The invoice price, along with the freight-in charges, is a key component in the calculation of the Cost of Goods Sold (COGS) for a business.
4. Accurately recording the invoice price and freight-in charges is crucial for proper inventory valuation and financial reporting.
5. The two commonly used freight-in methods, FOB Shipping Point and FOB Destination, have different implications for how the invoice price and freight-in charges are recorded.

Review Questions

• Explain the relationship between the invoice price and the landed cost of an item or good.
  • The invoice price is the starting point for calculating the landed cost of an item or good. The landed cost is the total cost to the buyer, which includes the invoice price plus any applicable freight-in charges. The invoice price, therefore, is a key component of the landed cost, as it represents the base price charged by the seller before the additional shipping and delivery expenses are factored in.
• Describe how the invoice price and freight-in charges are recorded in the Cost of Goods Sold (COGS) calculation.
  • The invoice price, along with the freight-in charges, is a crucial element in the calculation of the Cost of Goods Sold (COGS) for a business. The total cost of the item or good, which includes the invoice price and any applicable freight-in charges, is recorded as the COGS when the item is sold. Accurately recording the invoice price and freight-in charges is essential for proper inventory valuation and financial reporting, as the COGS directly impacts a company's gross profit and overall financial performance.
• Analyze the implications of the two commonly used freight-in methods, FOB Shipping Point and FOB Destination, on the recording of the invoice price and freight-in charges.
  • The two commonly used freight-in methods, FOB Shipping Point and FOB Destination, have different implications for how the invoice price and freight-in charges are recorded. Under the FOB Shipping Point method, the buyer is responsible for the freight-in charges, and the invoice price and freight-in charges are recorded separately. However, under the FOB Destination method, the seller is responsible for the freight-in charges, and the invoice price includes the freight-in costs, which are recorded as a single amount. Understanding these differences is crucial for properly recording transactions and maintaining accurate financial records.

Related terms

Freight-In:

The additional cost incurred by the buyer to have the purchased item or good shipped and delivered to their location.

Landed Cost:

The total cost of an item or good, including the invoice price and any associated freight-in charges, incurred by the buyer to have the item delivered.

Cost of Goods Sold (COGS): The total cost associated with the goods or items sold, which includes the invoice price and any applicable freight-in charges.