Transportation-out definition
/What is Transportation-Out?
Transportation-out is the freight cost incurred by a seller to ship goods to its customers. This cost is charged to expense as incurred. Some or all of this cost may be offset by freight billings charged to customers, unless the seller is offering free delivery to its customers.
Types of Transportation-Out
There are several types of transportation-out activities, which are noted below:
Freight charges. These are standard shipping fees paid by the seller to move goods from their location to the customer, using carriers like trucking companies, railroads, ships, or airlines.
Delivery vehicle expenses. If the seller uses its own fleet, costs such as fuel, maintenance, insurance, and depreciation on delivery trucks are considered transportation-out expenses.
Courier services. Payments to courier companies (such as FedEx, UPS, or DHL) for faster, often small-parcel, deliveries to customers fall under this category.
Freight insurance. Sellers often pay for insurance to cover goods in transit, ensuring protection against loss or damage while en route to the customer.
Loading and handling charges. Costs incurred for labor or equipment used to load goods onto transportation vehicles for delivery are also considered part of transportation-out.
Packaging for shipment. Expenses specifically related to preparing goods for shipment, such as crating, palletizing, or protective wrapping, may be included if necessary to facilitate transportation.
Example of Transportation -Out
Free Weights Corporation sells kettlebells to its exercise-crazy customers. One customer orders a complete set of kettlebells, which weighs 300 pounds. The freight cost of this shipment is $150. The company sells under a free shipping promise, so the customer pays the invoiced amount of $800 for the kettlebells, while Free Weights absorbs the $150 freight cost. The journal entry to record the cost of this transportation-out is as follows:
Transportation-out can be considered a selling expense that falls within the reporting for the sales department. However, since it is only incurred when a product sale is made, a better location for it is within the cost of goods sold line item on the income statement.