Transportation Costs in Accounting
Tracking transportation costs is crucial for setting prices and understanding business profitability.
1. Freight-In (Transportation In)
● refers to the cost of bringing products from a supplier to your business, such as shipping and
delivery charges.
○ Freight-in adds to inventory costs and affects profits when items are sold.
○ Including freight-in costs means the inventory’s value on paper is higher. This also lowers
profits initially because the total cost is bigger.
● Accounting Treatment: Freight-in costs are added to the cost of the items you’re buying,
increasing the inventory's value. When you sell the items, these costs are included in the cost of
goods sold (COGS).
● Example:
○ If a store buys goods for ₱5,000 and pays ₱500 for delivery, the total inventory cost is
₱5,500.
2. Freight-Out (Transportation Out)
● Refers to the cost of delivering products from your business to customers.
○ Freight-out is recorded as a business expense right away.
○ Freight-out expenses reduce profits immediately because they are not added to inventory
costs.
● Accounting Treatment: Freight-out costs are treated as expenses, like advertising or rent, and are
recorded in the financial records right away.
● Example:
○ If a business sells goods for ₱3,000 and pays ₱300 for shipping, the ₱300 is recorded as
a freight-out expense.
3. Shipping Terms
● Shipping terms determine who pays for transportation and when ownership transfers.
● explain who pays for the transportation and when ownership of the goods changes hands.
Common terms include:
a. FOB (Free on Board) Shipping Point:
○ Ownership transfers when goods leave the seller's location.
○ Buyer pays for freight-in costs.
Tracking transportation costs is crucial for setting prices and understanding business profitability.
1. Freight-In (Transportation In)
● refers to the cost of bringing products from a supplier to your business, such as shipping and
delivery charges.
○ Freight-in adds to inventory costs and affects profits when items are sold.
○ Including freight-in costs means the inventory’s value on paper is higher. This also lowers
profits initially because the total cost is bigger.
● Accounting Treatment: Freight-in costs are added to the cost of the items you’re buying,
increasing the inventory's value. When you sell the items, these costs are included in the cost of
goods sold (COGS).
● Example:
○ If a store buys goods for ₱5,000 and pays ₱500 for delivery, the total inventory cost is
₱5,500.
2. Freight-Out (Transportation Out)
● Refers to the cost of delivering products from your business to customers.
○ Freight-out is recorded as a business expense right away.
○ Freight-out expenses reduce profits immediately because they are not added to inventory
costs.
● Accounting Treatment: Freight-out costs are treated as expenses, like advertising or rent, and are
recorded in the financial records right away.
● Example:
○ If a business sells goods for ₱3,000 and pays ₱300 for shipping, the ₱300 is recorded as
a freight-out expense.
3. Shipping Terms
● Shipping terms determine who pays for transportation and when ownership transfers.
● explain who pays for the transportation and when ownership of the goods changes hands.
Common terms include:
a. FOB (Free on Board) Shipping Point:
○ Ownership transfers when goods leave the seller's location.
○ Buyer pays for freight-in costs.
