cancel
Showing results for 
Search instead for 
Did you mean: 
Highlighted
Level 1

How to account cost of shipping for purchase of inventory?

Hello, I am new to this quickbooks accounting (and business) and was wondering how to account for the shipping costs of inventory i am purchases. The shipping is coming on line item and when i added the expense/vendor i listed the shipping as a line item to duplicate the invoice i received from the vendor. With that being said i have three questions:

 

1. When listed in the vendor expense invoice what would the shipping be caterogized as? Cost of goods (expense)? or something else?

2. Is the shipping cost a true business expense? or should i be distributing the cost of shipping for the items puchased? 

3. Do i leave the vendor expense invoice as is listing it as a business expense (cost of goods or something) and then distribute the cost evenly between the products when adding as inventory? 

 

Just trying to figure out the cleanest way to account for the shipping expense. Thank you so much for your help. 

 

 

(Title has been edited by moderator for clarity)

Solved
Best answer March 23, 2018

Best Answers
Highlighted
Level 15

How to account cost of shipping for purchase of inventory?

@Honey

 

Inbound shipping is part of item cost - it is NOT expensed separately unless at year end you want to do a lot of math figuring out how many items are on hand, and how of that shipping belongs to them, and then moving that amount out of the expense account to an asset holding account and next year moving it back.


When you enter a purchase of inventory, in item details, you select the item the qty and the total cost per that qty. THEN, you portion out the shipping charges across all the items ordered, increasing the total amount paid for each. Insure the final total amount is the same as the bill received and you are good.


Outbound shipping to your customer is just an expense you post, it is not COGS


Pre-paid shipping, that the customer pays you when they order, is income. It does not post to an expense account. If you create a pre-paid shipping income account and post it to that, then on the P&L it is easy to see if pre-paid shipping in equal to or higher than shipping expense.

View solution in original post

16 Comments 16
Highlighted
Moderator

How to account cost of shipping for purchase of inventory?

Hi Honey,

 

There are a number of ways on how you can record a Shipping expense. You can categorize this as an expense to easily track this into Profit and Loss. I recommend contacting your accountant.

You can either create a Product and Services then enter the desired category account or directly selecting a Chart of Accounts.

 

Here's how:

  1. Click Gear icon.
  2. Select Products and Services.
  3. Click on New.
  4. Choose Service.
  5. Enter the Incom account.
  6. Select I purchase this product/service from a supplier.
  7. Enter Expense account.
  8. Hit Save and close.

Income Account - can be set to an expense account and enter a negative amount on an invoice. To show that you will be paying the shipping for the customer. A positive amount if a customer pays the shipping.

Expense account - Can either set Cost of sold or expense, either way, they will be both at business's expense.

 

The Service for shipping won't show if you don't turn on the option Show Items table on expense and purchase forms.

To do this please follow steps below:

  1. Click Gear icon.
  2. Select Accounts and Settings.
  3. Go to Expenses tab.
  4. Select Show Items table on expense and purchase forms.
  5. Hit Save.

If you have any other questions please feel free to comment.

 

 

 

Highlighted
Level 15

How to account cost of shipping for purchase of inventory?

@Honey

 

Inbound shipping is part of item cost - it is NOT expensed separately unless at year end you want to do a lot of math figuring out how many items are on hand, and how of that shipping belongs to them, and then moving that amount out of the expense account to an asset holding account and next year moving it back.


When you enter a purchase of inventory, in item details, you select the item the qty and the total cost per that qty. THEN, you portion out the shipping charges across all the items ordered, increasing the total amount paid for each. Insure the final total amount is the same as the bill received and you are good.


Outbound shipping to your customer is just an expense you post, it is not COGS


Pre-paid shipping, that the customer pays you when they order, is income. It does not post to an expense account. If you create a pre-paid shipping income account and post it to that, then on the P&L it is easy to see if pre-paid shipping in equal to or higher than shipping expense.

View solution in original post

Highlighted
Level 1

How to account cost of shipping for purchase of inventory?

Hi,

i start a co, we do only imports, so every load will come with a bill from international fright, customs clearing, than local trucking from port to my warehouse,

whats the best way to enter all the misc shipping fees so it can reflect the real cost of my inventory items and create an invoice to pay for the diffrent shipping vendors?

Highlighted
Level 15

How to account cost of shipping for purchase of inventory?

@BarryBrooklyn

 

Create an expense account named clearing, and then the additional bills come in:

1. Pay the shipping/customs bill or enter the bill and use that clearing expense account as the expense for the transaction

2. Edit the original bill as follows:
2a. increase the total amount for each item by a portion of the new bill
2b. change to the account portion of the bill at the top, select the clearing expense account, enter the amount of the bill as a negative number
2c. save the edited bill and click though any warning you may get about payments being applied.
2d. Insure the clearing expense account is zero balance, if not go back and adjust the item totals.

QB will use the edited bill to update the purchase cost. If any of the items were sold between the original bill and the additional bills, QB will automatically make the adjustment to the COGS account for the change in purchase cost.

Highlighted
Level 1

How to account cost of shipping for purchase of inventory?

We do special orders only, sometimes we charge the customer the freight cost to get it to our warehouse, and sometimes not. Would this apply to this situation?

Highlighted
Moderator

How to account cost of shipping for purchase of inventory?

Hi there, @elimep.

 

It's nice to have you here in the Community. I'm here to help make sure this is taken care of.

 

Yes! You may follow the steps provided by my colleague @Aphylis or the steps provided by one of our top Established Community Backer @Rustler. But, I'd also suggest consulting your accountant when setting up.

 

I'm only a post away if you should have any additional questions. Wishing you and your business continued success.

Highlighted
Level 1

How to account cost of shipping for purchase of inventory?

We are estimating shipping costs and putting them into each items shipped COGs account. But what do we do with the shipping bill when it arrives?

Highlighted
Moderator

How to account cost of shipping for purchase of inventory?

Good day, hpupanther.

I'd be happy to lend a helping hand with handling your shipping bills in QuickBooks Online.

 

As Rustler referenced, you'll need to create an expense clearing account. 

 

Here's how:

  1. Pay the shipping/customs bill or enter the bill and use that clearing expense account as the expense for the transaction
  2. Edit the original bill as follows:
  • Increase the total amount for each item by a portion of the new bill
  • Change to the account portion of the bill at the top, select the clearing expense account, enter the amount of the bill as a negative number
  • Save the edited bill and click through any warning you may get about payments being applied.
  • Ensure the clearing expense account is zero balance, if not go back and adjust the item totals.

QB will use the edited bill to update the purchase cost. If any of the items were sold between the original bill and the additional bills, QB will automatically make the adjustment to the COGS account for the change in purchase cost.

 

Let us know how it goes by leaving a reply below. We'll be here to help you out.

Highlighted
Level 1

How to account cost of shipping for purchase of inventory?

It's horrible functionality. I need to add shipping costs as a service to the goods received. And the calculations have to be performed automatically.

Highlighted
QuickBooks Team

How to account cost of shipping for purchase of inventory?

Hi nomadkupa,

 

I also like the idea of having an automatic calculation for the shipping cost of the items. I'd encourage you to suggest this to our product development team as I do the same on my end. On your QuickBooks account, you can click on the Gear icon and choose Feedback.

 

Feedback helps us to know the things our clients need for their businesses (your business).

 

Feel free to post again if you have additional questions.

Highlighted
Level 1

How to account cost of shipping for purchase of inventory?

 
Highlighted
Level 1

How to account cost of shipping for purchase of inventory?

Wow, OK.  One of my purchase orders has 5000 individual SKU's on it.  There has got to be an easier way.  I am not a large business.  On the contrary, I am pretty small.  But I import hair color.  Another online accounting program has 2 separate costs for inventory (one for the purchase order and one for the COGS expense).  The clearing account is done automatically through the difference between these 2 amount.  

Highlighted
Anonymous
Not applicable

How to account cost of shipping for purchase of inventory?

It's nice to see you here, @Lucinda345,

 

Welcome and thanks for joining our forum. Allow me to step in for a moment and share some insights about the shipping cost for your inventory items.

 

Being able to add or calculate a per item shipping cost for vendor transactions would be a handy feature most especially if you're processing bulk transactions. However, QuickBooks is unable to do this at the moment. To complete your work, you can to follow Aphylis and Rustler's suggestion above to add the cost of shipping for your inventory purchases. While recording this is quite tricky, I'd recommend consulting an accountant for further assistance.

 

They can provide expert legal and accounting advice on how to properly account this, so it does not throw off your financial records.

 

Please know that I'm here if I can be of additional help. Wishing you a cheerful and productive week!

Highlighted
Level 1

How to account cost of shipping for purchase of inventory?

When I divide my shipping cost by the amount of products ordered to increase the value of the items equally it doesn't equal my original bill. Would I have a few items that get more of an increase than others? For instance my shipping cost is $97.17 and I bought 25 items. $97.17 ÷ 25 = $3.8868. If I round up to $3.89 it equals $97.25. Should I just increase the value of 17 items by $3.89 and the other 8 by $3.88 to equal my shipping cost of $97.17?

Highlighted
Level 2

How to account cost of shipping for purchase of inventory?

Hi  @Rustler I'm a bit confused by your step: "2d. Insure the clearing expense account is zero balance"

 

Hoping you can help clarify. Here's my scenario:

 

I purchased 50 widgets at $18.00 each. Line total $900.00

My Shipping/Customs Bill is $318.60

Invoice Total $1,218.60

 

After following your steps, I get a per piece price of $24.372 and I've increased my per piece price on my PO to match that number. However, after creating the "Clearing" expense account and recording the shipping/customs expense of $318.60  there and adding the -$318.60 onto the PO in the expense category at the top, the PO total drops to the original line total of $900.00 (as I would expect). But, the balance in my Chart of Accounts for the new Clearing account did not zero. The Clearing account still shows a balance of $318.60 and I do not see the negative transaction listed on the account report. My questions are;

 

1. When you say "zero" do you just mean for it to zero against the PO so that the totals match what we paid? Or should the Clearing account actually be showing a zero balance, if so;

2. With the negative Clearing amount on the PO and the PO total now just accounting for just the original per piece price, where should the remaining expense for shipping & tariffs be showing up to keep our expense accounts complete?

3. Why if I have a positive expense and a negative expense of exact opposite values to the same category am I still showing a positive balance in the account report?

 

Thank you in advance!

Highlighted
Level 1

How to account cost of shipping for purchase of inventory?

Paragraph two says ...

"When you enter a purchase of inventory, in item details, you select the item the qty and the total cost per that qty. THEN, you portion out the shipping charges across all the items ordered, increasing the total amount paid for each. Insure the final total amount is the same as the bill received and you are good."

 

Can you give us any guidance on how we should do this?

 

Thank you!!

Need to get in touch?

Contact us