[leglock]

Looking for some guidance and hopefully some of you can share how your company handles freight out with respect to the following situations. I know we are taught GAAP says freight out is a selling expense (not a COGS) but some of the research I have done from FASB states it can be handled as a COGS. Ultimately, the bottom line will not change but the classification of certain items is what I’m seeking.

When we sell our product, some customers want the freight charge to them not shown as a separate line item on the invoice, but rather included in the price for the product (so price for product is the delivered price). Other customers want the shipping charge separately stated (so the invoice will show the price for the product and then a line item for shipping).

My question is when you have price for shipping included in the price of the product (not separately stated), do you report your gross sales on your statements as including the shipping? Also, do you show shipping as COGS or as a selling expense?

I can see pros and cons for different treatments (impact on gross sales, margins, etc.)which may be why the FASB article I’m reading leaves it up to the individual company.

Hopefully, some of you can share how your company handles this and how this data is reflected in your financials.

[leglock]

Would still love to hear how your company accounts for freight out.

We are always taught in accounting class that freight in is a cogs whereas freight out is a selling expense. As it turns out, the ASC allows for freight out to be classified as a COGS as well. I think there are multiiple released exam questions that make candidates classify them as a cogs or selling expense which now appears to be incorrect.

[Missy]

Well first of all even if our customers requested the freight cost added to the price of the goods purchased I would decline to do it. They can enter it however they choose on their end but I do a lot of analysis on pricing, etc and there is no way I would allow the average selling price to be affected by freight for the purposes of the reports. As a side many sales folks think you're obligated to jump through hoops at the customer's request (net 90 terms? No I am sorry we don't do that.) but it just takes one professional email to the customer “I understand your request, but we are not equipped to do that.” Iin the rare circumstances (happened twice in two years) that my invoicing doesn't agree with the line items on their purchase order (for example we have 3 lines that comprise a unit and the customer lumps it all into one line on their end) I do the billing out of quickbooks our way and send along a proforma invoice for the same amount that corresponds to their purchase order formatting.

How I handle freight out is a separate account on the p&l from freight in. Ideally freight out would net to zero because the cost would always be included on the invoice so the bill from ups would debit it for $20 and the invoice to the customer would credit that same $20. It will never zero out for us as circumstances sometimes require we not charge the customer.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[leglock]

funny. i was going to put attn: MLA in my subject line, as I know based on your past responses you would be someone who could offer a good answer.

Unfortunately for us, it is an industry standard that some customers want freight included in the price of the product, whereas others want it line itemed, whereas others will pay their own freight. So we have to offer all three options. I agree with you that it distorts the metrics, which is what brought up this entire issue at our company.

GAAP says if you sell it with freight included in the price, you must book the sale at the gross amount and you cannot offset the gross sale amount by the cost of the freight. To me, this creates comparability issues, because if we want to show a higher sales number, we can just include freight in all of our sales. Our gross sales will be higher than if the customer pays his own freight, yet net income will be the same in either scenario (but profit margin will be different).

I was concerned with how to classify freight out, be it a product cost as part of cost of good sold, or a selling cost and therefore not included when calculating gross profit. GAAP actually says you can classify it either way and should then disclose as much in the notes. This contradicts all of my teachings and even released questions I saw for the cpa exam, in that freight out was taught to be a selling expense only, and not part of cost of goods sold.

Seeing that GAAP allows for it to be handled as a COGS or a selling expense, I'm very much interested in how others classify it. It sounds like you don't classify it as part of COGS but rather as a selling expense.

[Anonymous]

On our audited statements we include freight out it in our Selling Expense, we include the freight income in our net sales. For our internal reporting and forecasts we report net freight expense/income in selling expense.

[Thrawn]

We book it to a cost of sales account called freight out whether it is charged to the customer or not. If they pay for it it goes to the same account, but then we have a 2nd account called recovered costs where the freight billing gets booked.

Our customer pricing models are built based on whether we charge them for freight or not. But our total freight expense is still visible although it rolls into cost of sales on the financials.

BEC 87 Feb 14
REG 84 Apr 14
FAR 82 Nov 14
AUD 86 Feb 15

[How many letters do you need]

This is so interesting, I've never seen freight out added to COGS from a reporting standpoint. I've seen freight income split out as revenue but usually only if it is a profit generator, which in some cases it could be. I suppose one could argue that if you have freight income you could have freight COGS but I would feel very uncomfortable sort of lumping into product COGS; I would want it clearly separated out; especially if you are a manufacturer and are dealing with the uniform cap rules. Either way, if there is no profit generated on the freight I go old school – sales expense no questions.

MBA,CMA,CPA, CFF?, ABV?

[Author]

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