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.