Carriage inward vs Carriage outward

WHAT IS CARRIAGE INWARDS ?

Carriage inwards is an expense incurred to bring the goods purchased to business premises or to a location as required by the business. When a company purchases any goods or raw material from any seller, the goods are required to be transported from seller’s warehouse to the company’s warehouse. All the transportation costs incurred during the transit are called as carriage inwards.

The costs of carriage inwards are usually borne by the buyer and can be paid separately or included in the price of the goods as per the terms agreed upon.

WHAT IS CARRIAGE OUTWARDS  ?

Similarly, when the goods are sold by the seller to the buyer, all the costs incurred during the transportation of the goods to the buyer’s location are known as carriage outwards.

The costs of carriage outwards , though paid by the seller, can be borne either by seller or by buyer as per the agreed terms.

If they are borne by the seller, they are debited as expenses in seller’s profit and loss account.

DIFFERENCE BETWEEN CARRIAGE INWARDS AND CARRIAGE OUTWARDS

Although both carriage inwards and carriage outwards are treated similarly in the trial balance, but there is a clear difference between these two terms, which is mentioned below :- 

BASIS CARRIAGE INWARDS CARRIAGE OUTWARDS
Meaning Transportation costs incurred while purchasing goods are known as carriage inwards .  Transportation costs incurred while selling the goods are termed as carriage outwards.
Accounting Treatment  It is shown on the debit side of trading account. It is shown on the debit side of profit and loss account.
Borne by  Carriage inwards is borne by the buyer of the goods. Carriage outwards is borne by the seller of the goods.
Type of Cost  It is a direct cost and forms part of cost of goods for the buyer. It is an indirect cost and forms part of selling and distribution cost for the seller.
Also known as  Carriage inwards is also known as freight inwards or transportation inwards.  It is also known as freight outwards or transportation outwards.
Capitalisation It may or may not be capitalized depending on the asset being purchased. It can never be capitalized since it is a pure revenue cost for the seller.
Impact of profitability It impacts the gross profitability of the buyer. It impacts the net profitability of the seller.

 

Thus, in a nutshell, carriage inwards and carriage outwards, often referred to as freight in and freight out, are terms given to the costs incurred by a business of transporting goods. Appropriate categorization and accounting of these two costs depends upon the terms agreed upon between the parties involved.

Accounting & Finance for Banking

Principles & Practices of Banking Module E Pdf

Free
Module E PPB ePDFs available in our android app. Get them all at https://iibf.info/app

Accounting and Finance for Banking Module A Pdf

Free
Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

Accounting and Finance for Banking Module A Pdf

Free
Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

Leave a reply

Please enter your comment!
Please enter your name here

Popular

Free Live Classes

spot_img

More from author

All about KYC/AML Exam by IIBF

All about KYC/AML Exam by IIBF The KYC/AML is a professional certification exam in Anti Money Laundering and Know your customer conducted by the Indian...

CCP- Certified Credit Professional Course by IIBF

IIBF CCP (Certified Credit Professional) exam is an All-India Exam directed by the Indian Institute of Banking and Finance (IIBF) to select competent candidates...

What is Digital Banking in Detail

Digital Banking is the automation of traditional banking services. It is defined as banking done through the digital platform, doing away with all the...

Digital Banking Course By IIBF

Digital Banking Course By IIBF Certificate course in Digital Banking is conducted by IIBF to provide practicing bankers a sound foundation in the digital banking...