I understand the concept of a business paying for both carriage INWARDS and carriage OUTWARDS, but why is the INWARDS cost posted to the Trading Account and the OUTWARDS cost posted to the Profit & Loss Account?
Are these both not classed as a business expense, therefore should be posted as such in the P&L Account?
If it's in the Trading Account, Carriage Inwards is presumably part of the cost of production of the products being sold, so is a direct cost. Carriage Inwards on buying, say, stationery online, would be in the P&L.
Carriage Outwards, assuming it's on products being sold, is probably in the P&L as a selling cost, along with other sales expenses etc. I think where it goes depends on the nature of the business, and whether it's charged to the customer. If it's invoiced to the customer, I'd put it in the Trading Account.
Many thanks John for your help.
I guess it is one of those rare postings that could, in essence, be either or either, depending on other factors. I will tho' follow your example.
Thank you.
Ken.
When I was going my ICB level 2 I questioned this, as the way I look at it is
You pay carriage inwards as a cost of purchase, but then if you sell a product and offer free delivery then surely to get a true idea of profit on sales then you have to charge outward carriage to the same trading account.
However I was told by people on here and by my training provider that it's charged to postage on P&L.
I don't get it or understand why really but I have just accepted it as these people know more than I do.
as I don't think that it reads as you have interpreted it and I fully support Foxies post (and Johns in this thread) which has an under current of do what makes sense for the given scenario but once you start down a path then apply such consistently.
I don't know what you were taught by ICB or your training provider but as a general rule of thumb (with some exceptions generally eradicated during debate) I would tend to believe the answers that you get on here.
If I have the wrong thread above please post a link to the one that you feel was at odd's with your understanding of what you feel should be the correct treatment and I'll review it.
kindest regards,
Shaun.
p.s. never accept anything that you do not understand. There is reasioning behind everything in the accounts (something that cannot always be said of the tax system) but that reasoning may not always be immediately apparent.
p.s.2 for this subject consider it from the perspective of the financial reporting standards which require that the cost of an asset includes all costs incurred in bringing it the the location and condition required by management (inventory is simply assets held for trading) so inbound costs are part of the cost of purchase.
For costs of sale one needs to determin whether such are direct or indirect costs in order to determin their treatment as either a cost of sale or an expense.
If split between direct and indirect you will often find that all outbound postage is classifed as indirect and expensed.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
sorry, as far as I can see I've not received any direct message. When did you send it?
I've not got a very fast turn around on messages anyway at the moment as spending all of my time trying to get my youngest son through his GCSE's (so many exams, so little time left).
Isn't your understanding of delivery costs also agreeing with Foxy's comment at the end of that thread? And also Johns reply above doesn't disagree with that.
I think that this may be one of those situations where everyone is actually agreeing but it's being read not quite as intended.
Have another read of Foxy's post and I think that you will see what I mean.
kindest regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
