Question

Why is freight-in accounted for differently than freight-out? Identify the difference in accounting and explain how principles or definitions from the Conceptual Framework for Financial Reporting are involved

Answer 1

1) Fright in is the shipping and handling cost of bringing goods into company,it will be included in cost of inventory because this expenses are directly related to purchase of inventory.

2) Fright out is shipping and handling expenses incurred to deliver the goods to customer,which is directly related to sales. Hence they are recognised as a selling expenses which are deducted from the Gross profit.

Hence they both are different because one related to Purchase of inventory and another one is related to sale of inventory.

As per IFRS the cost of purchase of inventory comprise the purchase price,import duties ,fright in and other handling expenses which are directly attributable to the acquisition of inventory.So fright in is included in cost of purchases.And fright out expenditure are directly related to sales so recognised as selling expenses.