Carriage Inwards

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.

Explanation

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 debitDebitDebit is an entry in the books of accounts, which either increases the assets or decreases the liabilities. According to the double-entry system, the total debits should always be equal to the total credits.read more 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?

Solution

ParticularsDebitCredit
Purchase A/c………Dr$10,000
Carriage Inwards A/c………..Dr$10
To Bank A/c$10,010
(Entry to record purchases and payment of carriage inwards)

Difference Between Carriage Inwards and Carriage Outwards

Carriage Inwards – Debit or Credit?

Example #1

When Freight inwards is paid during the purchase of inventory –

The journal entry passed when it is spent on buying the inventory is:

ParticularsDebitCredit
Purchases A/c …….DrXXX
Carriage Inwards A/c …….DrXXX
To Bank A/cXXX
(Entry to record purchases and payment of carriage inwards)

The journal entry passed for transferring carriage inwards to the trading account and added to the COGS or cost of goods sold is:

ParticularsDebitCredit
Trading A/c …….DrXXX
To carriage Inwards A/CXXX
(Entry to record carriage inwards to the trading account)

The journal entries in the case of carriage outwards are:

When carriage outwards is paid from bank account:

ParticularsDebitCredit
Carriage Outwards A/c …….DrXXX
To Bank A/cXXX
(Entry to record payment of carriage outwards)

When carriage outwards is transferred to the income statement or profit and loss account:

ParticularsDebitCredit
Profit and Loss A/c ……..DrXXX
To Carriage Outwards A/cXXX
(Entry to record carriage outwards to profit and loss account)

Example #2

Journal entries passed during the purchase of an inventory are –

The journal entry passed when carriage inwards is paid on buying the inventory is:

ParticularsDebitCredit
Purchases A/c …….DrXXX
Carriage Inwards A/c …….DrXXX
To Bank A/cXXX
(Entry to record purchases and payment of carriage inwards)

The journal entry passed for transferring freight inwards to the trading account and added to the COGS or cost of goods sold is:

ParticularsDebitCredit
Trading A/c ……..DrXXX
To CarriageInwards A/cXXX
(Entry to record carriage inwards to trading account passed)

Journal entry passed during the purchase of a fixed asset is:

When it is paid for purchasing the fixed assetFixed AssetFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more, then it will be added in the cost of the fixed asset and the entry to record this will be as follow:

ParticularsDebitCredit
Fixed Assets A/c ……..DrXXX
To Bank A/cXXX
(Entry to record purchases of fixed assets and carriage amount paid on such fixed asset)

Conclusion

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 soldCost Of Goods SoldThe cost of goods sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company.read more).

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.

Recommended Articles

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 –

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