Carriage Inwards

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Carriage Inwards Meaning

Carriage, also termed transportation inwards or Freight inwards is the costs incurred towards the Freight and transportation of goods from the supplier's warehouse to the buyer's business. It is treated as a direct expense and is always reflected on the debit (Dr.) side of the trading account, and in most cases, it is the buyer who is responsible for paying off such costs.

The capitalization of Freight inwards is dependent on the asset that is purchased. The buyer 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.

Carriage Inwards Meaning

Carriage Inwards Explained

Carriage inwards Freight inwards, or transportation inwards are the charges borne for transporting goods from the supplier's place to the location of the customer. Freight inwards may or may not always be capitalized. However, this depends on the type of asset purchased. Carriage inwards in income statement must be treated as a direct expense, and the entry for the same must be posted on the debit side of a buyer's trading account. Carriage-in is a part of the cost of the purchased goods (cost of goods sold, cost of inventory, and cost of the items available).

Carriage inwards in income statement 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 sold).

Journal Entry

The journal entry for the carriage inwards in accounting will be as follows:

Carriage Inwards A/c Dr

To Bank A/c

In the above entry, we see that the carriage inwards has been debited and bank has been credited. From the point of view of the buyer, when some goods are purchased by the business, it is necessary to increase the freight charge because the purchaser has to pay for the transportation cost. Therefore, according to the accounting rules, since expenses are debited, the charge for transportation will also be debited. Since money is going out carriage inwards in accounting in the form of payment in cash or credit, there is reduction in asset account. Thus, bank or cash will be credited.

When Freight inwards is paid during the purchase of inventory -

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

Particulars	Debit	Credit
Purchases A/c .......Dr	XXX
Carriage Inwards A/c .......Dr	XXX
To Bank A/c		XXX

(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:

Particulars	Debit	Credit
Trading A/c .......Dr	XXX
To carriage Inwards A/C		XXX

(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:

Particulars	Debit	Credit
Carriage Outwards A/c .......Dr	XXX
To Bank A/c		XXX

(Entry to record payment of carriage outwards)

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

Particulars	Debit	Credit
Profit and Loss A/c ........Dr	XXX
To Carriage Outwards A/c		XXX

(Entry to record carriage outwards to profit and loss account)

Journal entries passed during the purchase of an inventory are -

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

Particulars	Debit	Credit
Purchases A/c .......Dr	XXX
Carriage Inwards A/c .......Dr	XXX
To Bank A/c		XXX

(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:

Particulars	Debit	Credit
Trading A/c ........Dr	XXX
To CarriageInwards A/c		XXX

(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 asset, then it will be added in the cost of the fixed asset and the entry to record this will be as follow:

Particulars	Debit	Credit
Fixed Assets A/c ........Dr	XXX
To Bank A/c		XXX

(Entry to record purchases of fixed assets and carriage amount paid on such fixed asset)

Example

Let us understand the concept with the help a suitable example.

What will be the journal entry for $10 paid as charges towards Freight inwards in cash towards purchasing goods worth $10,000?

Solution

Particulars	Debit	Credit
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

The above examples clearly explain the concept of carriage inwards in trading account and other parts of financial statement in detail. Through these examples we can understand how the charges are recorded in the books of accounts.

Carriage Inwards Vs Carriage Outwards

Both the above items are important part of accounting for transactions related to transportation of goods between supplier and customer. But they are different in many ways. Let us identify the differences as given below:

Other Names: Carriage inwards is also known as transportation-inwards or transportation-in or freight-in or freight-inwards, while carriage outwards is also known as transportation-outwards or freight-outwards.
Meaning: Carriage inwards can be learned as freight and transportation costs incurred during the transportation of goods from the supplier's warehouse to the warehouse of the buyer. On the other hand, carriage outwards can be learned as freight and transportation costs incurred by a company while selling off its goods. In other words, Freight inwards is borne during the purchase of goods, whereas carriage outwards during the sale of goods.
Treatment: It receives treatment similar to that of a direct expense, whereas carriage outwards receives treatment identical to that of an indirect expense.
Capitalization: The capitalization of Freight inwards may or may not take place, and it depends on the asset bought. On the other hand, carriage outwards is not capitalized at all.
Reflection in a Statement: The entries about the carriage inwards in trading account are posted in the trading account, whereas the entries about the Freight outwards are posted in the income statement or profit and loss account.
Debit/Credit Side: The entries about the Freight inwards are posted on the debit side of the trading account, whereas the entries about the carriage outwards are posted on the credit side of an income statement or profit or loss account.
Responsibility: The buyer is mostly responsible for paying off the carriage inwards charges, whereas in the case of Freight outwards, it is the seller or the supplier who is primarily responsible for paying off these charges.
Journal Entry: Journal entry for inward carriage varies on the element and the purpose behind its use.

Thus, the above are some important differences between the two financial terms. It is necessary to understand these differences clearly so that it becomes easy to identify the items from the financial statements. It also helps the accountants who maintain the entries in the books to understand by looking at the invoices and bills, what entry must be recorded in which part of the financial statement so that it reflects a correct view of business transactions.