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Chapter 5: Q5-17RQ (page 294)

What is freight out and how is it recorded by the seller?

Short Answer

Expert verified

Freight-out should be reported in theincome statement of the seller.

Step by step solution

01

Meaning of Cost

In accounting, the term “cost” refers to the amount of money spent by a business to acquire, create, or sell goods and services. Generally, the costs are bifurcated intodirect and indirect costs.

02

Meaning of freight-out and its treatment

Freight refers to thetransportation cost associated with the goods. Freight-out denotes the cost of delivering the goods by a seller to its customers.

The freight-out should be reported under thecost of goods sold section in the income statement.

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Most popular questions from this chapter

Journalize the following sales transactions for Sierra Tractors. Explanations are not required.

June 5 Sierra sold \(20,000 of inventory on account, credit terms are 4/10, n/30. Cost of goods is \)10,000. Sierra uses the gross method to record sales revenue.

12 Sierra receives payment from the customer on the amount due, less the discount.

Describe FOB shipping point and FOB destination. When does the buyer take ownership of the goods, and who typically pays the freight?

Consider the following transactions for Toys and More:

May 8 Toys and More buys \(113,300 worth of MegoBlock toys on account with credit terms of 2/10, n/60.

12 Toys and More returns \)11,250 of the merchandise to MegoBlock due to damage during shipment.

15 Toys and More paid the amount due, less the return and discount.

Requirements

1. Journalize the purchase transactions. Explanations are not required.

2. In the final analysis, how much did the inventory cost Toys and More?

How is the net cost of inventory calculated?

Click Computers has the following transactions in July related to the sale of merchandise inventory.

July 12 Sold computers on account for \(8,000 to a customer, terms 3/15, n/30. The cost of the computers is \)4,800.

26 Received payment from the customer on the balance due.

Journalize the sales transactions for Click Computers assuming the company uses the perpetual inventory system.
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