Inventory accounting for duty and freight.
If the previous article seems involved, then that was the simple version. There are a
multitude of variations to this scenario which are included from examples 3 to 7. If you go through each one you will see the affect that has on journals created as you go through the workflow. One type that is worth mentioning is those examples that include duty/ freight considered as an asset.
Should I include duty freight invoices with inventory?
The reason this option is available as this has an immediate impact on the bottom line. If you see duty and freight as being wrapped up in the value of the goods it will be included as an asset along with the original purchase price. This increases your balance sheet and therefore the worth of the company. If you see it as a straight expense or cost of sale, then these transaction will hit your profit and loss which determines the amount of tax a company should pay within any given year. Check with your accountant to see which is appropriate and I have included a link to a further article for those who wish to pursue this further.
What are the calculation to include on costs as inventory assets?
For those who see this as part of your assets then you need to follow these procedures. The calculation allows involves the amount payable to duty/freight to be divided amongst the number of units, added to the purchase price and a proportioned across the units received. This can only be done by associating the original purchase order with that specific delivery. In Mamut this is linked by a separate “duty/freight invoice” tab which can apply the invoice whether it is issued by either the supplier or a third party such as DHL or FedEx. Other field then become available such as, import VAT, other taxes and handling. All these variations can be captured by applying the correct settings.
Of course, when you include the duty freight in your assets for stock, they will increase the value which in turn will increase your cost of sale when the goods are then sold. Swings and round about really. If you slow moving stock, then the difference to your bottom line could be quite substantial.
About the Author:
Malcolm Ford has worked for over 8 years in the ERP space providing advice on logistics and warehouse issues to businesses across the UK. Having an accounting background allows for an appreciation of the financial implications involved with stock control.