Carriage Inwards, also known as freight-in or transportation-in, refers to the shipping costs associated with getting inventory from the supplier to the business. Essentially, it’s the cost incurred by a business when it purchases goods that need to be transported into its premises. These costs are added to the inventory cost rather than being treated as an expense, until the goods are sold.
1. How does Carriage Inwards affect the Balance Sheet?
Carriage Inwards costs are added to the inventory cost. As such, they will increase the current assets on a business’s balance sheet until the inventory is sold. When inventory is sold, the Carriage Inwards cost is accounted for in the Cost of Goods Sold.
2. Is Carriage Inwards a debit or credit?
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Carriage Inwards is a debit. When recording Carriage Inwards costs, a business would debit the Inventory account and credit the Cash or Accounts Payable account depending on how the purchase was made.
3. What is the difference between Carriage Inwards and Carriage Outwards?
Carriage Inwards refers to the cost of transporting goods from a supplier to a business, whereas Carriage Outwards refers to the cost of transporting goods from the business to its customers. Carriage Inwards costs increase the cost of inventory, while Carriage Outwards costs are considered a selling expense.
4. How does Carriage Inwards affect profit?
Because Carriage Inwards increases the cost of inventory, it subsequently increases the Cost of Goods Sold when the inventory is sold. This results in a lower gross profit. However, until the goods are sold, the Carriage Inwards costs are part of the inventory asset and do not affect profit.
5. Can Carriage Inwards be capitalized?
Yes, Carriage Inwards costs can be capitalized. This is because they are directly attributable to the acquisition of inventory and can therefore be added to the cost of the inventory. These costs are then expensed as part of the Cost of Goods Sold when the inventory is sold.