Freight out definition
/What is Freight Out?
Freight out is the transportation cost associated with the delivery of goods from a supplier to its customers. This cost should be charged to expense as incurred and recorded within the cost of goods sold classification on the income statement. Freight out is not an operating expense, since the supplier only incurs this cost when it sells goods to a customer (rather than incurring it as part of day-to-day company operating activities).
Freight-out billings to customers should only be treated as revenue when doing so is the primary revenue-generating activity of the shipping entity. In this situation, freight revenue should be recorded in a separate revenue account, so that management can clearly see how much revenue is being generated by this activity. And, since freight revenue is being separately recorded, then so too should the associated freight expense. Doing so makes it easier to determine the amount of profit generated by these freight billings. In many cases, the net impact of freight billings and the cost of freight result in a negligible impact on profits.
Presentation of Freight Out
The cost of freight out generally appears within the cost of goods sold section of a reporting entity’s income statement. In most cases, the amount of unreimbursed freight out is so small that the balance in the freight out account is aggregated into the "other cost of goods sold" line item in the income statement. A separate presentation of freight out in the income statement appears within the following exhibit.
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Freight Out in Profit Analysis
If a profitability analysis by customer is developed, the cost of freight out should be included, since this can sometimes result in a significant reduction in profits by customer. This is especially the case when deliveries are being made over long distances, on a rush basis, or when the delivered goods are bulky.