Freight & Shipping - How to Handle

 

There are various ways to handle freight in your business bookkeeping and there are some opposing views (so my suggestion is to consult with your accountant after reading this).

 

  1.  Basically, inbound freight on purchases for items you sell should be calculated into COGS or charged as a lump sum to COGS as they are incurred. 

 

Here are options for handling inbound freight:

 

• If you purchase and want to track the landed cost, you need to spread the freight by items purchased (various methods for figuring this).

 

• If you pay for freight separately and want to roll into overall COGS - record the expense in an expense account. Then use inventory adjust, set it as a value adjustment, add the total cost of freight to the total value of the item and enter it in the column titled new cost or something like that. Do NOT change the number of items on hand. Use the expense account that you recorded the freight expense as the adjusting account.

 

• If you pay for freight separately and want to just lump into a COGS, add a line item to the bill and point to a Freight/COGS account.

 

• If purchase and want to directly pass on to client,   select the Customer:Job and make sure it is checked billable.    When you invoice that client:job, it will bring up the expense to invoice your customer.

 

  2.  Inbound freight for supplies and non sales related items is an expense.

 

  3.  Most say Outbound freight is an expense of doing business and is not COGS.  Others say it should be an income account and offset by a COGS which can easily be done through a two-sided item in QuickBooks.  Still others say it should be included in COGS.

 

I personally like to see the freight paid by customers as Income and freight paid to vendors as Expenses, using one double-sided Shipping & Handling item.