Paid freight on goods purchased journal entry is Freight Inward/Transportation Expense Account Debit This increases the freight inward or transportation expense account, reflecting the cost of transporting the purchased goods Credit to Cash/Bank Account This decreases the cash or bank account balance, reflecting the payment made for freight. Freight paid on goods purchased refers to the transportation cost incurred by a business to bring the purchased goods to its location. This cost is often added to the cost of the inventory or recorded as a separate expense, depending on the accounting practices of the business.
Key Concepts
- Freight Inward/Transportation Expense: The account representing the cost of transporting purchased goods.
- Cash/Bank Account: The account from which the freight payment is made.
- Purchases/Inventory Account: The account where the cost of purchased goods is recorded.
Journal Entry for Paid Freight on Goods Purchased
Example Scenario
Assume a company purchases goods worth ₹50,000 and pays freight of ₹2,000 on 25-09-2023 to transport the goods to its warehouse.
Step-by-Step Journal Entry
- Record the Purchase of Goods
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 25-09-2023 | Purchases/Inventory | 50,000 | Goods purchased | |
| 25-09-2023 | To Accounts Payable | 50,000 | Payable to supplier |
Explanation
- Debit to Purchases/Inventory: This increases the purchases or inventory account, reflecting the cost of goods purchased.
- Credit to Accounts Payable: This creates a liability, reflecting the amount owed to the supplier.
- Record the Freight Payment
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 25-09-2023 | Freight Inward/Transportation Expense | 2,000 | Freight paid for purchased goods | |
| 25-09-2023 | To Cash/Bank | 2,000 | Payment of freight |
Explanation
- Debit to Freight Inward/Transportation Expense: This increases the freight inward or transportation expense account, reflecting the cost of transporting the purchased goods.
- Credit to Cash/Bank: This decreases the cash or bank account balance, reflecting the payment made for freight.
Combined Journal Entry (Optional)
Some businesses prefer to record the purchase and freight in a single combined entry. Here is how it would look:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 25-09-2023 | Purchases/Inventory | 52,000 | Goods purchased and freight paid | |
| 25-09-2023 | To Accounts Payable | 50,000 | Payable to supplier | |
| 25-09-2023 | To Cash/Bank | 2,000 | Payment of freight |
Conclusion
Accurately recording freight paid on purchased goods is essential for tracking the total cost of inventory and maintaining precise financial records. Properly managing these transactions ensures that the business’s expenses and inventory costs are accurately represented in the financial statements, contributing to better financial management and reporting.