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Carriage Inwards and Carriage Outwards

What is Meant by Carriage Inwards and Carriage Outwards?

Carriage refers to the cost of transporting goods into a business from a supplier and the cost of transporting goods from a business to its customers. The amount of transportation expense settled by the purchaser of the goods is called Carriage Inwards. The cost incurred by the seller of goods to deliver the goods sold to customers is called Carriage Outwards. The amount of Carriage Outward is posted in the Profit and Loss Account as an indirect expense and the amount of Carriage Inward in Trading Account as a direct expense. Since both the amounts are registered as expenses, they are recorded as debit balances.


What is Carriage Inwards?

If you are looking to understand “what is carriage inwards?”, then it is quite simple. It is the handling and shipping charges or the transport cost which a company or an individual incurs when there is a purchase of the goods or raw materials. It refers to the expense that is incurred to bring the purchased goods into the premises of the business or to the required location. Carriage inward is a nominal account, and it is also known as transportation-in or freight-in. It is evaluated as a direct expense and Carriage inward in trading account reflects on the debit side of it. This is the fundamental answer to “what is carriage inwards?”


What is Carriage Outwards?

Now we know about carriage inwards, the next question comes is, what is carriage outwards? The exact opposite of carriage inwards is termed carriage outwards that is it refers to the handling and shipping costs that a company incurs while transporting the goods to a client. In the income statement, the cost of carriage outwards usually occurs within the cost of goods sold. Carriage outward is an example of overhead, and it is treated as an indirect expense. Carriage outwards can also be called freight-out or transportation-out. 


What is the Accounting Impact and Profitability Impact of Both Carriage Inwards and Carriage Outwards?

The carriage inward in trading accounts is accounted for in the books of accounts of the buyer, while the carriage outwards is accounted for in the books of the accounts of the seller. The carriage inward in the trading account is debited, while the carriage outwards is debited to the profit and loss account. 

The gross profitability of the buyer is impacted by the occurrence of carriage inwards, while the net profitability of the seller is impacted by the occurrence of carriage outwards. 

With the above-mentioned definitions, we can now understand the difference between carriage inwards and carriage outwards.


Solved Examples

Q1. Mention the major difference between carriage inwards and carriage outwards. 

There are numerous differences between carriage inwards and carriage outwards. Both of the terms are opposite of each other, and their functions differ at several levels such as: 

  • The carriage inward refers to the transport or freight cost which the buyer incurs on the purchase of goods or raw materials, while the carriage outward refers to the cost of transport or freight which the seller incurs while delivering or shipping the goods sold by it. 

  • When we talk about what is carriage outwards?, it is the carriage outward is incurred on the inventory of the seller while the carriage inward is acquired on purchase of capital goods, raw materials etc. 

  • The seller incurs the carriage outwards at the time of sale or delivery of goods, while a buyer incurs the carriage inwards during the time of purchase. 

  • Carriage inwards is a direct expense while the carriage outwards is vice-versa. That is, it is an indirect expense. 

(Image will be Uploaded soon)

The difference between carriage inwards and carriage outwards is demonstrated in the above image. One can easily spot that both are opposite of each other and goes vice-versa. The carriage inwards is the inventory or the cost of sales, while the carriage onwards is the selling cost. Both the terms have several differences. The carriage inwards can be taken as the transportation cost which occurs while transferring the goods from the location of the supplier to the location of the buyer, whereas the carriage outwards is the opposite of this. The carriage outwards is borne during the sale of goods, while the other one occurs during the purchase of goods. 


Do You Know?

Carriage means shipping or transport expenses. It is the cost of transporting or shipping goods from a supplier to a business and the transportation cost of goods to the customers from a business. Another term used in accounting is the "Railage inwards”. The term is British, and it is defined as the transportation cost by a train (rail). In simpler terms, it refers to the expense of transporting goods to your desired business location through a train. 

FAQs on Carriage Inwards and Carriage Outwards

1. Is carriage inward direct expense?

Yes, carriage inwards is counted as an indirect expense since it is part of the direct cost of the raw materials that are purchased by you, which is why it is not counted as a distinct expense but is included in the cost of the asset. It is evident that all the indirect costs come in the account of profit and loss, which is why the carriage outward comes under the profit and loss account while the carriage inward in the trading account is present. The reason for charging carriage inwards in a trading account is because it is associated with buying goods. Now we know the answer to the question “Is carriage inward direct expense?”

2. What is Carriage inward in final accounts, and where is it disclosed?

Carriage inwards or transportation inwards are the expenses incurred for transferring the goods from the location of the supplier to the customer's area. Carriage inward in final accounts is the handling and shipping costs contracted by a company that is receiving goods from the suppliers. Also known as the freight-in or transportation-in, the carriage inwards is contemplated to be a component of the items that are purchased, and for the inventory items, the carriage inwards will be a piece of the expense of the goods. The carriage inwards may not always be capitalized, and it depends on the type of asset bought.

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