Carriage Inwards vs Carriage Outwards in Accounting: Meaning, Differences and Journal Entries

Carriage refers to the costs of transporting goods to and from the place of business. In the past, the purchase of goods would often result in two charges – the cost of the goods purchased and the cost of having them delivered to the business premises.

 The amount of transportation expense settled by the purchaser of the goods is called Carriage Inwards. The cost incurred by the seller of goods to deliver the goods sold to customers is called Carriage Outwards.

The main distinction between carriage inward and carriage outward is in who pays for it. The buyer pays for carriage inward, increasing inventory costs and the seller pays for carriage outward, increasing distribution costs. 

CARRIAGE INWARDS

Carriage inward refers to the transportation or freight costs a business incurs when purchasing goods and bringing them to its own premises. It is the costs of air freight, road transport or sea freight added to inventory costs. 

Carriage inward directly contributes to the acquisition cost of inventory. When goods are transported from a vendor to a company, the incurred cost must be added to the total purchase value of the goods. It is mentioned in the Trading Account. 

This ensures that the cost of goods sold (COGS) is calculated accurately. 

Hence, carriage inward is -

• Incurred by the buyer.
• Categorised as a direct expense.
• Recorded in the Trading Account.
• Known as freight-in or transportation-in in some accounting systems.

Accounting treatment of Carriage Inward

Carriage inwards is added to the purchase cost. It increases the inventory value and is not expensed directly.

Journal Entry: -

Carriage Inwards A/c …… Dr

    To Bank/Cash A/c

Journal Entry while Purchasing a Fixed Asset:

Carriage inward is capitalised for fixed assets, increasing the asset’s value. This journal entry debits asset account and credits the bank account to account for asset properly.

Asset  A/c …… Dr

    To Bank/Cash A/c

CARRIAGE OUTWARDS

Carriage outward is the cost incurred by a seller to deliver goods to the customer. Unlike carriage inwards, this is an operational or selling expense and does not contribute to the inventory’s value.

Carriage outward reflects the cost of providing service to customers post-sale. It influences net profit and is treated like other selling and distribution expenses. 

Hence, Carriage Outward is - 

• Incurred by the seller.
• Categorised as an indirect expense.
• Recorded in the Profit & Loss Account.
• Also referred to as freight-out or transportation-out.

Accounting treatment of Carriage Outward

Carriage outward is an indirect expense and is recorded in the Profit & Loss Account.

Journal Entry: -

Carriage Outwards A/c …… Dr

    To Bank/Cash A/c

Each type of carriage will be an expense and therefore, will have a debit balance in the trial balance. However, these will appear in different sections of the trading and profit and loss account.

FREQUENTLY ASKED QUESTIONS 

Why is carriage outwards treated as an indirect expense on the Profit & Loss account?

Because carriage outwards occurs after the sale and relates to delivery, it is not part of the product’s cost. Hence, it is an indirect expense, shown separately in the Profit & Loss Account.

Can carriage inwards ever be expensed immediately rather than capitalised into inventory cost?

Yes, if the amount is insignificant or goods are not for resale (e.g., office supplies), carriage inwards can be expensed directly. But for goods that form part of inventory, it should be capitalised.

How do carriage costs impact gross profit and net profit calculations?

• Carriage Inwards increases the cost of goods sold → reduces gross profit.
• Carriage Outwards is a selling expense → reduces net profit.