Hi

What is the journal entry for this question:

An invoice received for freight inwards $70(being for direct materials purchased)? Perpetual inventory is used ?

Thanks

Rick

Freight is part of the cost of the thing you purchase. It's usually just added to the same account as what you purchased (in this case material), but there are some other ways it can be done and then adjusted later.

Quote:

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Originally Posted by morgaine300

Freight is part of the cost of the thing you purchase. It's usually just added to the same account as what you purchased (in this case material), but there are some other ways it can be done and then adjusted later.

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Thanks Morgaine for your prompt answer

So how you set the journal? Debit : freight in
Credit: COGS

Correct me if I am wrong!

Cheers
Rickl

Debit Freight-in (if a purchases account is used) or Debit Inventory for the amount
Credit Cash (if paid) or Accounts Receivable (if on account) for the amount

Quote:

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Originally Posted by dimazin

so how you set the journal? debit : freight in
credit: COGS

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Three things:

First, as I've said and pready sort of reiterated, it might go to freight OR added directly to the account of what you've purchased. So no way to know what method your book may want you to use. Since it's direct materials, I'm suspecting it's added directly to the materials account because it's not likely to have a purchases account. (Purchases account generally used for periodic method merchandising, and direct materials is implying you're doing manufacturing.)

Second, if you credit COGS, then you would be reducing cost, not adding to it. If freight adds to the cost of something, why would you want to reduce cost? Not to mention that a COGS account is for what is already sold, not for what is still in materials.

And third, if you receive an invoice for something, what account is that? It's no different than receiving an invoice for the purchase of office equipment or your utility bill, etc.