illustration entry for freight-out and -in

Freight-out and Freight-in
Illustrative Entry

If goods are sold F.O.B. shipping point, the purchaser is responsible for paying freight costs incurred in transporting the merchandise from the point of shipment to its destination. Freight cost incurred by a purchaser is called freight-in, and is added to purchases in calculating net purchases:

6-6-X4	Purchases		8,000
	Freight-in		1,500
	Cash			1,500
	Accounts Payable			8,000
	Purchased $8,000 of inventory, terms F.O.B. shipping point, and paid the shipping freight bill of $1,500

If goods are sold F.O.B. destination, the seller is responsible for costs incurred in moving the goods to their desired destination. Freight cost incurred by the seller is called freight-out, and is reported as a selling expense which is subtracted from gross profit in calculating net income.

5-11-X4	Accounts Receivable		7,000
	Freight-out		400
	Cash			400
	Sales			7,000
	Sold merchandise on account for $7,000, terms F.O.B. destination, and paid the freight bill of $400

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