What is meant by Carriage inwards and its accounting treatment?

Carriage inwards, transportation inwards, transport inwards, freight inwards or shipping cost are the cost borne by the buyer of the goods for moving the goods from supplier’s place to his own place (usually raw material store) or for receiving the goods at his place as such costs are to paid once delivered. It is often termed as transport-in or freight-in as a short form.

Carriage inwards cost are paid assets acquired by the business, however, assets may either be stock or non-current assets. Although basics for treating carriage inwards but following details are important.

Carriage inwards for inventory

Although carriage inwards is a direct material cost as it is paid in relation to material required by the business. However, there are other technical factors that needs to be considered:

  • If carriage is paid specifically for certain type of inventory then it is much easier to allocate the cost to the same. However, if one payment is made for different types of goods then allocation of carriage inwards among each type of inventory raise problems. That is the reason most of the time carriage inwards is treated as overhead cost i.e. indirect cost of material. However, if entity insists on treating carriage inward as material cost then suitable basis are used to apportion carriage cost among inventory sets. But another other reason that makes overheads approach attractive is that such costs are mostly nominal as compared to the value of inventory involved therefore, it does not harm costing accuracy in a great way and thus spare the hassle.
  • The other important factor is whether entity is using perpetual inventory system or periodic inventory system. Under perpetual inventory system carriage inwards cost is treated as part of inventory as it is debited as cost of inventory. However, under periodic inventory system a separate account is maintained for carriage costs. And allocation of carriage to the inventory is done at a later stage when it is sent to production on proportionate basis and thus ultimately it is spilled in cost of goods sold when such units are sold.

But if we skip the technical bit which we mostly do in financial accounting then carriage inwards is added up in purchases and becomes part of cost of sales calculation. In other words carriage inwards form part of trading account calculation and is treated in calculating gross profit calculation and NOT after gross profit calculation.

If it all sounds too difficult to understand then remember according to IAS 2 cost of purchase of inventory comprises of:

  • purchase price,
  • import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and
  • transport, handling; and
  • other costs directly attributable to the acquisition of  goods

So if above discussion is too hard to carry then you can rely on instructions of IAS 2.

Carriage inwards for other assets e.g. non-current assets

IAS 16 that relates to such assets is very straight regarding cost of acquisition. According to IAS 16 all such costs that are necessary to be incurred to bring the asset into its intended use then all such costs are part of cost of the asset. Therefore, if cost inwards is necessary to bring the asset in to the state for which it is intended then it will be added up as cost of the asset.


  1. Thank you for your article. Awesome.

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