Adding shipping costs to Cost of Inventory
Supriya
Member Posts: 3
Hi
Hoping someone will be able to help me here.
I have a bill from my manufacturer for a variety of items I purchased. I have put the cost of lineitem on the bill against an Inventory Asset (say, Inv A). When I make a sale on this item, a journal entry is made to reflect an debit against expense account called Product Purchase and credit against the Inventory Asset Inv A. This works great to track the inventory and reflects the gross profit.
I also have a bill from the shipping company, for the the freight-in charges of the (above) items from the manufacturer to me. These are currently lumped as a separate COGS expense. The question is, is there a way where I can add these freight-in charges to the inventory costs - rather than a separate COGs expense?
P.S. Newbie to accounting.
Thanks in advance!
Comments
Hey @Supriya! Unfortunately, it would not be possible to add those freight-in charges to the inventory costs, but I'm actually not sure that you'd want to do so! Keeping it as a separate COGS expense means that you can have a more granular look at the end of the year at the costs associated with the movement of your items, which may be beneficial.
Hi @ConnorM, Thanks for your response!!!
Agreed, having it separate clearly shows me the freight-in expenses. The situation I am in that I would order big bulks from the manufacturer at one go to keep my costs low, so all expense gets lumped to the year. The order is my target sales for a couple of years. The year that I place the orders, it shows me under heavy loss. And the next year, my PL shows I am profitting from every sale .... which is not really true. The freight-in costs are big costs for me, so it really stuffs up my reporting. Wondering what is the best way to get a more accurate picture on the actual profits.
Hi @Supriya , if your expenses are being paid all at once in a particular year, these would in fact be your expenses for the year as they did happen when you paid them. So in my opinion here, you'd want to keep them in that single year. Correct me if I'm not understanding?