Freight charges carry specific classification in accounting. Accountants typically label the charges as either FOB shipping point or FOB destination. FOB stands for “freight on board.” It is a traditional term commonly associated with freight charge when delivering fixed assets, such as equipment. FOB shipping point requires a buyer to pay freight charges. FOB destination means the seller must pay the charges for shipping assets. The journal entry for recording freight reflects the classification for freight charges given by accountants.
Determine the classification for the freight charges. Transactions that occur at the seller’s location are FOB shipping point. Transactions at the buyer’s location are FOB destination.
Note the total freight charges listed on the shipping manifest. Include assessorial charges and fuel surcharges from the bill.
Create an entry to record the freight charges into the general ledger. FOB destination—when the buyer pays the freight—requires a debit to freight-in and a credit to accounts payable. Sellers—who pay freight under FOB shipping point—debit delivery expense while crediting accounts payable.
Post the entry into the company’s ledger. Write the account number, account name, dollar amount and a brief description to properly record the entry.
In some cases, a buyer may be able to debit an asset account when freight charges coincide with a fixed asset purchase. Discussing the freight cost with a licensed accountant can clarify this issue.
- "Intermediate Accounting"; David Spiceland, et al.; 2007