Accounting groups under

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Daya (Querist)
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02 October 2024 Freight Inward for RM Purchase
Freight outward for RM purchase return
Freight outward for Sales outward
Freight Inward for sales return,
My question is whether Freight inward and outward for purchase of Raw material under Direct Expense Freight Expenses
For sales outward and inward keep under Freight for sales under indirect Expenses.
is correct way to maintain books of accounts.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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12 August 2025 Your approach is mostly on the right track! Here's how freight expenses are typically classified in accounting:

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### Freight Expense Classification

| Transaction Type | Accounting Group / Expense Head | Nature | Explanation |
| --------------------------------------------------------------- | --------------------------------------------------- | ---------------- | ---------------------------------------------------------------------------------------------------------------------- |
| **Freight Inward on Raw Material Purchase** | Direct Expenses / Cost of Goods Sold (COGS) | Direct Expense | Freight cost is part of the cost of acquiring raw material, so included in direct expenses. |
| **Freight Outward on Raw Material Purchase Return** | Direct Expense / Purchase Returns (adjustment) | Direct Expense | Cost related to returning raw materials, reduces purchase cost. Can be shown as deduction or separate freight expense. |
| **Freight Outward on Sales (Delivery to Customers)** | Indirect Expenses / Selling & Distribution Expenses | Indirect Expense | Freight on sales is part of distribution cost, hence indirect expense. |
| **Freight Inward on Sales Return (Goods Returned by Customer)** | Indirect Expenses / Selling & Distribution Expenses | Indirect Expense | Freight cost on goods returned by customers is part of sales returns handling; indirect expense. |

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### Explanation:

* **Freight Inward for Raw Material:**
Considered a **direct expense** because it adds to the cost of raw materials, hence increases the cost of production.

* **Freight Outward on Purchase Returns:**
Treated as direct expense or adjustment, since it relates to purchase transaction; alternatively, it reduces purchase value.

* **Freight Outward on Sales:**
Classified as **indirect expense** (selling & distribution expense), since it is cost related to making sales (delivering goods to customers).

* **Freight Inward on Sales Return:**
Treated as indirect expense related to handling returns.

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### Your Proposed Treatment:

* Freight inward and outward for raw materials under **Direct Expense/Freight Expenses** — **Correct.**
* Freight outward for sales under **Freight for Sales (Indirect Expense)** — **Correct.**

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### Additional Notes:

* For better clarity, many organizations create separate ledger accounts like:

* Freight Inward (Direct)
* Freight Outward (Sales)
* Freight on Purchase Returns

* Proper classification helps in accurate cost accounting and financial analysis.

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If you want, I can help you prepare sample ledger heads and entries for these freight transactions. Would that help?

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