Here is a detailed explanation and an example of journal entries for freight in accounting.
Scenario:
A company purchases goods and incurs freight charges. The freight charges can be either included in the cost of inventory or recorded separately as a freight expense.
1. Freight Included in Inventory Cost:
When freight is included in the cost of inventory, the freight charges are added to the Purchases or Inventory account.
Example: The company purchases goods worth ₹50,000 and incurs freight charges of ₹5,000.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Inventory A/c | 55,000 | |
| To Accounts Payable A/c | 55,000 | |
| (Being goods purchased including freight charges) |
2. Freight Recorded as a Separate Expense:
When freight is recorded separately, the freight charges are expensed in the Freight In account.
Example: The company purchases goods worth ₹50,000 and incurs freight charges of ₹5,000.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Inventory A/c | 50,000 | |
| Freight In A/c | 5,000 | |
| To Accounts Payable A/c | 55,000 | |
| (Being goods purchased with separate freight charges) |
Example with Different Details:
1. Freight Included in Inventory Cost:
The company purchases goods worth ₹30,000 and incurs freight charges of ₹2,000.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Inventory A/c | 32,000 | |
| To Accounts Payable A/c | 32,000 | |
| (Being goods purchased including freight charges) |
2. Freight Recorded as a Separate Expense:
The company purchases goods worth ₹30,000 and incurs freight charges of ₹2,000.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Inventory A/c | 30,000 | |
| Freight In A/c | 2,000 | |
| To Accounts Payable A/c | 32,000 | |
| (Being goods purchased with separate freight charges) |
Summary:
Freight charges can be treated either as part of the cost of inventory or as a separate expense. Including freight in the inventory cost can be beneficial for more accurately matching expenses with the cost of goods sold, while recording it separately can help in better tracking of freight costs.
