As an entrepreneur, the Internal Revenue Service and accounting regulators allow you to include shipping costs as a business expense. As such, you can deduct it from revenues when preparing corporate financial statements and fiscal returns. Shipping costs include money a company pays to convey goods from corporate warehouses to customers' storage facilities.
Business Expenses
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Business costs include everything a company spends money on, whether it be for operational purposes or to abide by regulatory and legal decisions. These outlays -- the other name for expenses, costs or charges -- run the gamut from shipping and storage to merchandise expense, salaries and litigation. For analytical ease, finance people often set the cost of goods sold -- an identical term for merchandise expense -- apart from selling, general and administrative (SG&A) costs. Business expenses reduce an organization's income, and top leadership typically takes tangible steps to rein in waste and create an occupational environment where personnel understand the need for cost management.
Make-or-Buy Decision
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If you own a business, you may ponder whether the company should outsource the shipping function or develop in-house expertise in goods conveyance. Corporate strategists often call this operational dilemma a "make-or-buy decision." Depending on your organization's operations, you may find it economically advantageous to hire a shipping company to convey merchandise to customers. This option might be cheaper if, for example, the business doesn't have a high shipment volume. Otherwise, it could be more cost-effective to create a full-scale shipping department, purchase or lease applicable motor vehicles -- such as trucks -- and hire competent managers to run the department.
Accounting
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To record shipping costs, a corporate bookkeeper debits the shipping expense account and credits the vendor payable account or the cash account. The last item comes into play if the business pays for merchandise conveyance immediately. Vendor payables -- the other name for accounts payable -- represent cash a business owes suppliers and service providers as varied as utility companies, landlords and contractors. When accountants talk about crediting cash, they mean reducing company money; this is distinct from the banking industry's practice in which crediting a customer's account means good news for the client.
Financial Reporting
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Shipping costs make it into the SG&A section of a statement of profit and loss, also known as an income statement or report on income. Accountants subtract all expenses from corporate revenues to calculate pretax -- or taxable -- income, which becomes net income after the reporting business settles fiscal obligations. Besides an income statement, a corporation must issue a balance sheet, a statement of cash flows and an equity report at the end of each quarter and fiscal year.
