Carriage Inwards Meaning
Carriage inwards, also termed as transportation inwards or freight inwards, is defined as the costs that are incurred towards the freight and transportation of goods from the warehouse of the supplier to the place of buyer’s business and it is treated as a direct expense and is always reflected on the debit (Dr.) side of the trading account and in most of the cases, it is the buyer who is responsible for paying off such costs.
Carriage inwards or freight inwards or transportation inwards are the charges borne for transporting goods from the place of the supplier to the location of the customer. Freight inwards may or may not always be capitalized. However, this depends on the type of asset purchased. It must be treated as a direct expense, and the entry for the same must be posted on the debit side of a buyer’s trading account. Carriage-in is a part of the cost of the goods that are purchased (cost of goods sold, cost of inventory, and cost of the items available).
Example of Carriage Inwards
What will be the journal entry for $10 paid as charges towards freight inwards in cash towards the purchase of goods worth $10,000?
Difference Between Carriage Inwards and Carriage Outwards
- Other Names: Carriage inwards is also known as transportation-inwards or transportation-in or freight-in or freight-inwards while carriage outwards is also known as transportation-outwards or freight-outwards.
- Meaning: Carriage inwards can be learned as freight and transportation costs incurred during the transportation of goods from the warehouse of the supplier to the warehouse of the buyer. On the other hand, carriage outwards can be learned as freight and transportation costs that are incurred by a company while selling off its goods. In other words, freight inwards is borne during the purchase of goods, whereas carriage outwards during the sale of goods.
- Treatment: It receives the treatment similar to that of a direct expense, whereas carriage outwards receives the treatment identical to that of an indirect expense.
- Capitalization: The capitalization of freight inwards may or may not take place, and it depends on the asset bought. On the other hand, carriage outwards is not capitalized at all.
- Reflection in a Statement: The entries about the carriage inwards are posted in the trading account, whereas the entries about the freight outwards are posted in the income statement or profit and loss account.
- Debit/Credit Side: The entries about the freight inwards are posted on the debit side of the trading account, whereas the entries about the carriage outwards are posted on the credit side of an income statement or profit or loss account.
- Responsibility: It is the buyer who is mostly responsible for paying off the carriage inwards charges, whereas in the case of freight outwards, it is the seller or the supplier who is primarily responsible for paying off these charges.
- Journal Entry: Journal entry for inward carriage varies on the element and the purpose behind its use.
Carriage Inwards – Debit or Credit?
When Freight inwards is paid during the purchase of inventory –
The journal entry passed when it is spent on buying the inventory is:
The journal entry passed for transferring carriage inwards to the trading account and added to the COGS or cost of goods sold is:
The journal entries in the case of carriage outwards are:
When carriage outwards is paid from bank account:
When carriage outwards is transferred to the income statement or profit and loss account:
Journal entries passed during the purchase of an inventory are –
The journal entry passed when carriage inwards is paid on buying the inventory is:
The journal entry passed for transferring freight inwards to the trading account and added to the COGS or cost of goods sold is:
Journal entry passed during the purchase of a fixed asset is:
When it is paid for purchasing the fixed asset, then it will be added in the cost of the fixed asset and the entry to record this will be as follow:
Carriage inwards is an expense that is incurred while transporting goods from the supplier’s warehouse to the buyer’s warehouse. It can also be learned as costs about the shipping and handling of goods that are, in most cases, incurred by a company that is purchasing Goods from the supplier. It must be treated as a direct expense, and therefore, the same must be considered while calculating the total cost of the goods purchased. It must be included as a part of the cost of inventory, cost of available goods, and COGS (cost of goods sold).
The capitalization of freight inwards is dependent on the asset that is purchased. It is the buyer who mostly takes care of the payment made towards it. However, it may not be the case for all, and sometimes, even the seller may pay the freight inwards, or both the seller and the buyer may pay for the same.
This has been a guide to Carriage Inwards and its Meaning. Here we discuss examples of freight inwards along with journal entries and differences from Carriage Outwards. You can learn more about financing from the following articles –