Definition:
Transportation costs recorded in the income statement are the costs related to the entity’s transportation of goods to customers or suppliers.
These costs include the cost of transporting goods from warehouses to customers by a delivery man, trucks, ships, and freighting costs.
There are two main differences in transportation costs, where one of those treated as operational cost and others are included in the cost of assets: Inventories and Fixed assets. We will discuss the detail in this article.
Types of transportation costs:
As you could see in the picture above, we classified the costs into two main categories: only costs occurred in the entity.
The first transportation costs are the cost that occurred related to customers, and the second is the costs related to suppliers.
The accounting treatment of this cost is completely different. The following are detailed explanations of these two costs:
Transportation Costs with Customers (Distribution Cost)
These are the transportation costs incurred related to distributing goods to customers. These costs are treated as operational costs which are recorded in the income statement for the period incurred.
These costs could not be treated as the cost of sales in the income statements. Here is an example of these costs:
- The delivery cost of goods by the salesman
- Cost of distributing goods from warehouse to customers
- Cost of shipping goods to customers
- Cost of freight out goods to customers
Handing costs and insurance costs associated with these transportation costs should be classified separately. Yet, they are all treated as operational costs.
Transportation Costs with Suppliers
Transportation cost related to suppliers included the cost of transporting goods, raw material, and assets that are responsible by the entity.
For the costs related to transporting goods, raw material, and assets, this cost should be classed and included in those items.
However, distribution costs related to transporting office suppliers should be treated as operating expenses. The reason is because of office suppliers. Here are examples of these costs:
- Cost of transporting goods purchased from suppliers
- Cost of transporting material from suppliers
- Cost of transporting assets purchases from suppliers
- Cost of fright in of goods, material, or assets from suppliers
Noted: transporting costs of items that treated those items are treated as operating expenses, the cost should be treated as operating costs.
For example, transporting costs of purchasing office suppliers are treated as operating expenses.
