Q5-17RQ - Horngren'S Financial And Managerial Accounting

Question

What is freight out and how is it recorded by the seller?

Step-by-Step Solution

Answer

Freight-out should be reported in the income statement of the seller. 

Meaning of Cost

In accounting, the term “cost” refers to the amount of money spent by a business to acquire, create, or sell goods and services. Generally, the costs are bifurcated into direct and indirect costs.

Meaning of freight-out and its treatment

Freight refers to the transportation cost associated with the goods. Freight-out denotes the cost of delivering the goods by a seller to its customers. 

The freight-out should be reported under the cost of goods sold section in the income statement.