The key difference to understand is that freight-in is incurred to ship materials to the company’s production facility. Freight-in is part of the production process and will be capitalized into inventory and expensed through cost of goods sold when the product is sold. Freight-in is the cost incurred to ship finished goods to a distributor or retailer. Freight-out is considered a selling expense and is expensed when incurred.
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What costs are included in costs of good sold?
Cost of goods sold doesn’t have a strict definition, but would generally include any cost incurred to produce a good or deliver a service. Another way to think about a cost of goods sold is whether or not you would incur that cost if you stopped selling a good or service. Cost of goods sold...
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What is the journal entry to record freight-out?
Freight-out is considered a selling expense and is expensed when incurred. When a company hires a 3rd party transportation company to transport inventory to a customer, the company would debit freight-out expense (selling expense) and credit cash (cash outflow to pay shipping company). Alternatively, the credit would be to accounts payable if they paid on...
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What is the journal entry to record freight-in?
Freight-in is capitalized onto the balance sheet since it’s considered a production cost. Therefore, when freight-in is incurred, the company would debit inventory (freight-in) and credit cash (cash outflow to pay the expense). Freight-in only flows through cost of goods sold when inventory is sold and revenue is recognized.
What costs are included in costs of good sold?
Cost of goods sold doesn’t have a strict definition, but would generally include any cost incurred to produce a good or deliver a service. Another way to think about a cost of goods sold is whether or not you would incur that cost if you stopped selling a good or service. Cost of goods sold...
What is the journal entry to record freight-out?
Freight-out is considered a selling expense and is expensed when incurred. When a company hires a 3rd party transportation company to transport inventory to a customer, the company would debit freight-out expense (selling expense) and credit cash (cash outflow to pay shipping company). Alternatively, the credit would be to accounts payable if they paid on...
What is the journal entry to record freight-in?
Freight-in is capitalized onto the balance sheet since it’s considered a production cost. Therefore, when freight-in is incurred, the company would debit inventory (freight-in) and credit cash (cash outflow to pay the expense). Freight-in only flows through cost of goods sold when inventory is sold and revenue is recognized.
As an expert in accounting and financial concepts, I have a comprehensive understanding of the intricacies involved in managing costs within a business. My expertise is rooted in practical knowledge gained through academic qualifications, professional experience, and a track record of successfully navigating the complexities of financial reporting.
Now, let's delve into the concepts mentioned in the article to shed light on the key differences between freight-in and freight-out, along with related accounting entries:
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Freight-In:
- Freight-in refers to the cost incurred to ship materials to the company's production facility.
- It is considered part of the production process and is capitalized into inventory.
- The cost is later expensed through the cost of goods sold when the finished product is sold.
- The journal entry to record freight-in involves debiting the inventory (freight-in) and crediting cash (cash outflow to pay the expense).
- Importantly, freight-in flows through the cost of goods sold only when the inventory is sold, and revenue is recognized.
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Freight-Out:
- Freight-out, on the other hand, pertains to the cost incurred to ship finished goods to a distributor or retailer.
- Unlike freight-in, freight-out is considered a selling expense.
- The cost is expensed when it is incurred, reflecting the immediate impact on the company's financials.
- The journal entry for freight-out includes debiting the freight-out expense (selling expense) and crediting either cash (cash outflow to pay the shipping company) or accounts payable if payment is deferred.
Understanding these concepts is crucial for proper financial reporting and decision-making within a business. It's essential to distinguish between production-related costs (freight-in) and selling-related costs (freight-out) to accurately reflect the financial health of a company and comply with accounting standards.
In the context of the article, the mention of the Universal CPA platform for CPA exam preparation indicates a commitment to staying abreast of industry developments and adhering to the latest accounting practices. For those seeking a comprehensive understanding of these concepts, the Universal CPA course appears to offer a valuable resource, featuring visual learning and bite-sized video explanations for every multiple-choice question (MCQ) and simulation.
For any further inquiries or clarification on accounting principles, feel free to explore additional questions on related topics.
