Freight-out Journal Entry
Freight-out is the cost that incurs when the company pays the transportation fee for the delivery of goods to the customers. Likewise, the company will need to make the journal entry for freight-out as an expense when it occurs.
As the freight-out is the cost that the company incurs in order to facilitate the sale of its goods, it is usually recorded as an expense under the section of selling expenses on the income statement.
Freight-out journal entry
When the company bears the transportation cost when making the sale, it can make the freight-out journal entry by debiting the freight-out account and crediting the cash account.
Freight-out is an expense account, in which its normal balance is on the debit side. Likewise, in this journal entry, the total assets on the balance sheet decrease while expenses on the income statement increase by the same amount of freight-out cost.
Freight-out expense or delivery expense usually has the same function and share the same nature. This is why sometimes the company may records the freight-out cost as the delivery expense instead.
For example, the company ABC incurs the transportation cost of $100 when it makes the sale and delivers the goods to one of its customers.
In this case, the company can make the freight-out journal entry with the $100 as the transportation cost as below:
In this journal entry, both total assets on the balance sheet decrease by $100 while expenses on the income statement increase by the same amount.
It is useful to note that the company usually calculate the freight-out cost and include it in the invoice price so that it can cover such cost. By doing this, the company can avoid the decrease of the profit margin due to it bears the delivery expenses on the goods sold and delivered to customers.