Transportation-in definition
/What is Transportation-In?
Transportation-in is the freight cost incurred by the buyer to have purchased goods delivered. This cost classification can include freight insurance costs and customs duties. Transportation-in can be assigned to the cost of inventory, which means that it will not be charged to expense until the related inventory is sold to a third party.
Transportation-in can also be included in the capitalized cost of a fixed asset. If so, you should depreciate it over the same useful life as the asset with which it is associated.
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Example of Transportation-In
A company, Coconut Electronics, purchases 1,000 units of computer components from a supplier. The cost of the components is $50 per unit, and the supplier charges $1,000 for shipping (transportation-in). Coconut pays for the shipping. The accounting for this transportation-in charge is to add the $1,000 to the cost of the inventory, resulting in a total inventory cost of $51,000. When the inventory is eventually sold, the transportation-in cost becomes part of the cost of goods sold.
FAQs
How do Transportation-In Costs Affect Inventory Valuation?
Transportation-in costs increase the total cost of inventory by adding freight and shipping expenses incurred to bring goods to the buyer’s location. This higher cost basis ensures that inventory reflects all necessary expenditures to make items ready for sale. As a result, gross profit may decrease slightly because cost of goods sold rises when the inventory is sold.