Is Freight Out a Debit or Credit in Accounting?

Freight encompasses the costs associated with transporting goods from one location to another. These costs are a common consideration for businesses moving physical products. Various types of freight costs exist, each with distinct accounting treatments. One specific type is “freight out.”

Understanding Freight Out

Freight out refers to the expenses a seller incurs to deliver goods to a customer. This cost arises after a sale has been completed and the products leave the seller’s premises. It represents the cost of moving finished goods from the seller’s location to the buyer’s designated destination.

These costs are considered a selling or distribution expense, as they are directly tied to the process of making a sale. Common scenarios include shipping finished goods to customers, delivery charges for online orders, or transportation expenses for products sent from a manufacturer to a retailer. The specific amount can vary based on factors like the type of goods, shipping method, and destination.

Recording Freight Out

Freight out is categorized as an expense account in accounting. When a business incurs this cost, it is recorded as a debit. This follows the fundamental accounting principle that increases in expenses are recorded with a debit entry.

A journal entry to record freight out involves a debit to “Freight Out Expense” (or “Delivery Expense” or “Selling Expense”) and a credit to “Cash” if paid immediately, or “Accounts Payable” if the payment is due later. This entry reflects the outflow of economic benefits associated with the delivery service.

On the income statement, freight out is presented as an operating expense, typically falling under selling, general, and administrative (SG&A) expenses. While some companies may classify it under cost of goods sold, accounting principles treat it as a selling expense because it is incurred after the goods are produced and directly relates to the sale.

Distinguishing Freight Out from Freight In

Freight out differs from “freight in” in its accounting treatment and purpose. Freight in, also known as inward freight, represents the costs incurred by a business to transport goods from a supplier to its own location, such as a warehouse or production facility. These costs are part of acquiring inventory or raw materials.

Unlike freight out, freight in is capitalized, meaning it is added to the cost of inventory. This means freight in is debited to an inventory or purchases account and only impacts the cost of goods sold (COGS) when the related inventory is sold. The distinction is important because freight out is a cost of selling goods, whereas freight in is a cost of acquiring goods.