Accounting Troubleshooters (Canada) Forum

Full Version: How to deal with shipping in
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Hi there... newbie here and this is my first post.

Needless to say, I registered because I have a question I am not sure how to deal with.

So lets say I own a retail store and I want to account for the inventory I receive.
[correct me if I get this wrong]

First, I receive a big box with lots of things in it.
I should add the cost of the inventory to an "Inventory Account" and then when it actually sells, reduce the "Inventory Account" and move it to COGS, but what about the cost of shipping?

I some some resources saying it "clings" to the Item and is then added to the COGS when the item sells. Well that's ok... then the "Inventory Account" and COGS are not just the cost of the items... but also getting them to market...

Problem is the cost of shipping was for the whole box and not the individual items.
How can one possibly breakdown those costs accurately?
I mean its certainly not just a percentage of of the price of the goods... some of the items are large and fragile and so shipping is more... What's more is, the more I order the cheaper the shipping is per item.

Part of me thinks one should account for shipping in separately and immediately... which would make the inventory and COGS just the cost of the items and not shipping.

But what's considered best practice?
Shipping in (Freight costs in purchasing inventory) is considered part of Inventory cost.
Shipping out (to customers) is considered as a selling expense.

When you are calculating the costs of individual inventory items as part of a bulk purchase, you need to add all related costs, such as duty, brokerage, Freignt in costs. and then allocate the landed costs for each item by the cost multiple. eg.
if the total landed costs = 12,000.
Purchase cost = 10,000
then the landed cost multiplier is 1.2
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