We are a distributor of office products. We buy from the wholesaler and sell to the end-user. When we invoice the end user freight charges are entered as a cost of sale and the customer therefore receives free freight. When we expense the supplier invoice, however, we have been expensing purchases separate from freight. Is this incorrect? On our sales report are we seeing a lower profit margin because we are expensing freight separately on the payables? If we expensed freight as part of the purchase cost, how would this change our profit picture. Is it OK to roll freight into the cost of the purchase when expensing payables?

We are a distributor of office products. We buy from the wholesaler and sell to the end-user. When we invoice the end user freight charges are entered as a cost of sale and the customer therefore receives free freight. When we expense the supplier invoice, however, we have been expensing purchases separate from freight. Is this incorrect? On our sales report are we seeing a lower profit margin because we are expensing freight separately on the payables? If we expensed freight as part of the purchase cost, how would this change our profit picture. Is it OK to roll freight into the cost of the purchase when expensing payables?
When you post your vendor ( accounts payable invoice) post the Freight to a Cost of Sales
Account called COS: FREIGHT, and when you Sell to your customer you charge Freight charges and post it to an Income: freight account