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Please suggest accounting entry

Kanhaiya (Student) (303 Points)

28 December 2009

Hi friends. I have some doubt about treatment of a particular entry, please help me out.

I am an internal auditor of the trading company. When the product comes to the warehouse of the company, they will debit the freight in Account Head Freight Inward A/C and for when the product sells to the party then freight will be charged in Carriage Outward A/C. But my question is what will be the correct entry in the situation where goods are directly sent to the party by the transporters as per AS-2???

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6 Replies

Amir (Learner) (4016 Points)
Replied 28 December 2009

My Friend AS 2 talks about the VALUATION OF INVENTORY and it doesn't speaks about the Head under which Expenditure should be booked....What i could get from ur query is u want to know whether the transportation cost incurred in case of goods sold DIRECTLY, would be included in the COST OF INVENTORY OR NOT..

Answer is "ALL COST INCURRED TO BRING THE INVENTORY TO ITS PRESENT(At the time of Valuation) LOCATION AND CONDITION SHALL BE INCLUDED"

So the cost of transportation in case of direct sale from the transporters will NOT be INCLUDED since it is incurred on goods which YOU HAVE ALREADY SOLD AND SOLD OUT GOODS DOES NOT CONSTITUES YOUR INVENTORY

As far as accounting entry is concerned Freight Outwad is the correct head since it is not only meant for goods sold from the warehouse but would also covers the cases of direct sales..Since the transportation cost incurred in case of DIRECT sale would also be termed as the cost incurred for SENDING THE GOODS and hence Freight incurred on Outward trip..

1 Like

Jag Bhushan Sharma (Faculty in a B-School) (633 Points)
Replied 31 December 2009

Yes, Amir is absolutely right.

Kumar (Article) (922 Points)
Replied 25 May 2010

Khaniyaji.....

not expected this type of question from u....

pls refere Rawat sahab's point no. 3.6.1 will solve ur direct sales query.

aapka

Kumar

janak (post graduation) (1327 Points)
Replied 11 June 2010

i agree with "amir"

Amey Satish Gogate (Article) (115 Points)
Replied 12 June 2010

As per AS-2 all those expenses which are incurred to bring the inventory to present location & condition forms part of cost of inventory.Thus fright inward is includible & fright outward is excludible. Entries are to be passed as we normally pass

Freight Inward A/c.......................Dr

To Bank/ Creditors

Freight Outward A/c.......................Dr

To Bank/ Creditors

However while caclulating closing stock proportinate amount of fright inward will have to be includible into closing stock figure