Freight out, also known as delivery expense is a cost paid for the transportation of goods that are shipped to a customer. This cost is considered as a part of the goods cost and is supposed to be added to the customer's cost for the goods.
In economics freight or cargo refers to all goods that are conveyed by land, water or air usually in order to gain commercial profit. Originally the term "cargo" was interchangeable with the term "shipload". Nowadays, it covers all types of freight, including carrying by truck, train or any kind of intermodal container.
Going into more details, the freight out is the transportation cost associated with the delivery of goods from a particular supplier or a distributor to their customers. This cost should be charged to an expense as incurred and recorded within the cost of goods sold classification on the income statement. The freight out is not an operating expense because the supplier only incurs this cost when goods are sold to a customer rather than incurring it as a part of day-to-day operating activities.
If the freight out cost is billed to customers, the billings should not be netted against the freight out expense account. Instead, the revenue is supposed to be reported separately from the freight out expense. There might be a case when the amount of unreimbursed freight out is of such a small value that the balance in the freight out account is aggregated into the line "other cost of goods sold" in the income statement.
If a customer develops profitability analysis, the cost of freight out should be included, as this can result in a significant reduction in profits by customer.
The difference between freight in and freight out
The difference between the freight in and out is the following:
- Freight in also known as transportation in is intended to reflect the delivery expenses or transportation costs when the person being responsible for delivery is a purchaser. The buyer records this cost as freight in or transportation in.
- Freight out also known as transportation out or delivery expense is intended to reflect the delivery expenses or transportation costs when the seller is the one responsible for a delivery of goods. The trader records the transportation cost as freight out, transportation out, or delivery expense.
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Author: Anna Bodura