“Carriage” simply means transport or shipping costs. For example, the cost of transporting goods by ship or by train.
WHAT IS CARRIAGE INWARD ?
Carriage inwards is an expense incurred to bring the goods purchased to business premises or to a location as required by the business. When an entity purchases goods or raw materials, it need to transport them from seller’s factory or warehouse to its own factory, warehouse or store. All transportation costs required for this transit constitute carriage inwards.
The cost of carriage inwards is usually borne by the buyer. It can be paid separately or can be included in the price of the goods depending on the pricing terms .
It is also known as Freight on Purchases or Freight In.
ACCOUNTING TREATMENT FOR CARRIAGE INWARDS
The journal entry for carriage inwards will be :-
Carriage inwards a/c (Dr.) ……….
To Cash ac (Cr) ………..
(Being entry recorded for payment of carriage inwards)
The carriage inwards account is written off to the trading account at the end of the accounting period.
WHAT IS CARRIAGE OUTWARD ?
When the buyer sells the goods to his customer, he incurs further delivery charges. This cost is referred to as ‘carriage outwards”. Since , this cost is incurred when there is an outward flow of goods from the business, thus giving it the name ‘carriage outwards’
It is shown on the debit side of a profit and loss account (income statement) and is treated as an indirect expense.
It is also known as freight-outwards or transportation-outwards.
ACCOUNTING TREATMENT FOR CARRIAGE OUTWARDS
Journal entry to be passed will be :-
Carriage outwards a/c (Dr) ……….
To Cash a/c ( Cr) …………
(Being entry passed for carriage outwards )
MAJOR DIFFERENCES B/W CARRIAGE INWARDS & CARRIAGE OUTWARDS
- Carriage inwards is usually borne by the buyer of the goods whereas Carriage outwards may be borne by seller or the buyer depending upon the terms.
- Carriage inwards is a direct cost whereas Carriage outwards is an indirect cost.
- Carriage inwards may be capitalized to the cost of asset in case of purchase of capital goods by the buyer whereas Carriage outwards can never be capitalized.