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Accounting for shipping In when it's on your FedEx vs vendor invoice

accounting for shippingWe have large volume hardware purchases and a manual process for accounting for them as we don't yet have an ERP. About 1/2 the invoices have freight included and the total of the invoice is booked to inventory. However, for a lot of vendors the shipping is charged to our FedEx account. I've been booking this to COGS shipping, however, in theory some of this is actually sitting in inventory at month-end. How have others been handling this? I don't want to manually go through every FedEx statement and then try to determine which invoices the charges relate to, but, then again I want to be GAAP compliant. We are a fast growing start-up and need a scalable solution. Thank you in advance for your guidance and advice.

Answers

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

There are a couple of solutions:
1) You could require your purchases for product you will resell, have the vendor charge freight on the invoice (and not use your Fed Ex account number)
2) A different variation would have the vendor bury freight expense in price (probably not preferred)
3) Use a different Fed Ex number for these shipments by indicating your requirement on your purchase orders. This way the applicable Fed Ex invoice would capture all necessary freight cost that should be in inventory. I prefer option 1 as any standards you may establish would properly include freight. You may not be using standards, but if you are, you are complicating your life by having freight as a separate expense.
4) which leads to option 4, which would be develop standard costs including freight, but you will still have to measure actual purchases against these standards in order to get your costing right.

Good luck and if you have any follow ups, let me know.

Anonymous
(Controller) |

Thank you. We try to use our account as much as possible due to the favorable pricing, however, there are a few vendors where this isn't an option. 90% of the FedEx relates to inventory and thus why I book to COGS, however, was trying to get it allocated to inventory in a relatively straight-forward way (if that was possible). All items purchased are for resale (ie we have no RM or WIP).

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Anon
Based on your response to Patrick's suggestions, it seems you should try option 4. If you can determine standard freights costs by product/supplier (and that does not become a monster to maintain), then use the standard with a PPV account offset (to book actual COGS freight to).
You would then only need to split the PPV account balance at period end between P/L and B/S if it was a material difference. If it's not material, leave it in P/L.

Test your process and then figure out how to implement it.
Cheers
Len

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

I like Len's response on a standard for freight costs. You can always maintain an analysis on this and not hold up important costing or closing processes.

Anonymous
(Controller) |

Thank you to those who responded. I see my weekend being invested in standard costing and how to properly account for the freight in when you don't have automated systems in place and you don't really have the bandwidth. The difficulty lies in the fact that inventory is currently maintained in excel (ie the count at 9/30, plus ins and outs) and I am on QB online. I did speak with my HW guy today about this and he said he's worked on this in the past with finance folks, but, they were bigger and had better systems, however, he's happy to provide guidance/support. And, as I just came on board, I simply booked a book to physical adjustment (based on count by inventory person who just came on board and organized everything, hmmm, did I mention trunk inventory), but, for year-end will need to substantiate inventory valuation (ie for this I ran with what invoices I could get hands on from recent purchases). I think once I get this sorted, then I'll have to look to a way to potentially automate and what solutions are out there. Still a long way to go.

(Agent, JKS Solutions, Inc.) |

Yes, standard costing is the easiest to administer.

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