Freight cost set up


I’m an importer and have difficulty to set up Freight cost to see correct COGS in P&L.
Freight cost is set up as direct expense under stock expense and type is COGS.

To simply matter, let’s say there was shipping fee of USD 8,000 to import the items of USD 200,000. And sold some to the customer amount of USD 40,000. In P&L report, COGS was USD 10,000 and Freight was USD 20,000. From my understanding COGS should be around 30,000 and Freight cost should be less than USD 2,000.

Did I miss something?

Try using landed cost voucher to increase valuation rate of the items.

1 Like

Thank you. Before doing it I want to make sure I understand it correctly. So far I have added VAT,Duty and Freight cost in the purchase invoice under Purchase Taxes and Charges. To follow your suggestion, those charges should be in landed cost voucher not purchase invoice. Correct?

I see VAT, Duty and Freight cost is distributed on each item under tax breakup/purchase invoice. Is this supposed to work?

@ekkljs Did you manage to find explanation or solution to your problem? facing similar issues!

Hi I will try to answer your questions

You can get a quick overview of the Landed Cost Voucher and how to use it, view this video.

Freight cost can be setup under Direct Costs and type needs to be Expenses Included in Valuation

This is how LCV works

  1. When you create a Purchase Receipt or Purchase Invoice for the Original Goods, let us say 1000 nos of Item at $200/nos which is $200,000 for 1000 nos of Item 1, the Stock is Debited by $200,000 and Supplier is credited by the same amount. ( I am ignoring the temporary account of Stock Received but not billed for this discussion). At this point the valuation of each product is $200

  2. When you add the Freight Costs incurred to procure these goods, either through Purchase Tax and Charges Table (type = Total and Valuation) or through a LCV, the Freight Cost is added to Item’s valuation.

Let us assume that the Freight cost incurred to procure 1000 nos is $8000, i.e $8/nos. When you add this to the Item valuation through one of the two methods described above, the Freight Charge Account (type=`Expenses Included in Valuation) is Credited and the valuation of Stock is Debited (increased).
The Entries for the Purchase now looks like this

Stock------------(200,000+8000=208,000) Dr
Creditor----------(200,000) Cr
Freight Cost------(8,000)Cr

  1. When you enter Purchase Invoice for the Freight Cost, assuming that the Supplier for Freight is different from the Goods Suppliers, JV looks like this

Creditor------8,000 Cr
Freight Cost–8,000 Dr

You need to enter this Purchase Invoice if the Supplier is different and want to keep track of Outstanding and Payments.
If the Freight cost is charged by the goods supplier themselves, add it in the Pruchase Tax and Charges table in the Original Invoice and make sure the type is set to Total and Valuation. In this method the Dr and Cr to Freight cost will be posted in the original Purchase Invoice.

Now if you notice the Freight Cost Ledger is getting cancelled out at the end (8000 Dr and Cr). This means that the Freight Cost is getting transferred to the Stock Account (Item’s valuation), which is the intent of adding a Landed Cost Voucher.

Note I am not considering VAT in Purchase, assuming that it is refundable or you get some credit against it. So VAT will not be considered in Landed Cost.

The valuation of each item in above case is now $208,000/1000nos = $208/nos

  1. When you make a Sale of this product, the COGS will be equal to the new valuation of the Product. Let us say you sell 500 nos at $300/nos = $150,000,assume 5% VAT on sale
    COGS = $208 x 500nos = $104,000
    JV will look like

Debtor—$157,500 Dr
Stock----$104,000 Cr
COGS----$104,000 Dr
Sales----$150,000 Cr
VAT------$7,500 Cr

Gross Profit = Sales -COGS = $150,000-$104,000 = $46,000

The video I quoted above explains all of this.

Hope this helps.


Just one question, the accounts for freight and fwd is type chargeable by default under indirect expenses.
What you are saying is we should change it to “in Valuation” and under “direct expenses”?
To be honest I am searching for the answer to this for a while, watched your video and read the docs, but i still dont understand if I should use the default freight and forwarding or add a new one under expenses included in valuation.
the default one increases item value too.