Carriage Inward vs Carriage Outward: Meaning, Treatment & Journal Entries
A Promise Kept
In our article on Return Inward and Return Outward, we noted that carriage inward and carriage outward are entirely different concepts despite the similar “inward/outward” naming and promised a dedicated article. Here it is.
If “carriage” sounds old-fashioned to you like something out of a Victorian shipping ledger, you’re not wrong about its origins, but the concept is as current as the delivery fee you pay on your last online order. Carriage simply means the cost of transporting goods. And just like Return Inward/Outward and Discount Allowed/Received, carriage inward and carriage outward are two sides of the same basic idea but with one crucial difference from those earlier topics: carriage inward and carriage outward are treated completely differently in the financial statements, not as mirror images of each other.
Getting this distinction right is one of those topics that, once understood, makes an entire category of exam questions and bookkeeping decisions trivially easy.
What is Carriage Inward?
Carriage Inward is the cost of transporting goods INTO the business typically, the freight/transport cost incurred when bringing purchased goods from the supplier to the business’s premises.
Other names you’ll encounter for the same concept:
- Freight In
- Carriage on Purchases
- Transportation In
Simple Example
A furniture retailer in Chittagong orders $20,000 worth of timber from a supplier in Khulna. The supplier’s invoice covers the timber itself ($20,000), but the cost of trucking that timber from Khulna to the retailer’s warehouse in Chittagong $800 is billed separately (or paid separately by the retailer to a transport company).
That $800 is Carriage Inward, the cost of bringing purchased goods in.
What is Carriage Outward?
Carriage Outward is the cost of transporting goods OUT of the business typically, the delivery cost incurred when sending sold goods from the business to its customers.
Other names you’ll encounter:
- Freight Out
- Carriage on Sales
- Delivery Expenses
- Transportation Out
Simple Example
That same furniture retailer sells a finished dining table to a customer across town for $1,500. Delivering the table to the customer’s home costs $40 paid by the retailer to its delivery driver.
That $40 is Carriage Outward — the cost of sending sold goods out.
The Critical Difference: Where Each Appears in the Financial Statements
Here is the single most important fact in this entire article and the one that gets tested constantly:
Carriage Inward is added to the cost of Purchases in the Trading Account — it increases the cost of goods, and ultimately affects Gross Profit.
Carriage Outward is treated as a Selling and Distribution Expense in the Income Statement (below the Trading Account) — it does NOT affect Gross Profit; it only affects Net Profit.
This is not symmetrical, unlike Return Inward/Outward (both nominal accounts affecting the trading account) or Discount Allowed/Received (both income statement items below gross profit). Carriage inward sits inside the gross profit calculation; carriage outward sits outside it, further down the income statement.
Let’s understand why this difference exists because once you understand the “why,” you’ll never forget the “what.”
Why Carriage Inward is Added to Purchases: The Cost Principle in Action
Recall the historical cost concept from our accounting concepts article: assets are recorded at their full cost of acquisition not just the invoice price, but everything necessary to bring that asset to its present location and condition, ready for use or sale.
This principle is explicitly stated in IAS 2 — Inventories, which we referenced in our cost sheet article: the cost of inventories includes “costs of purchase” and costs of purchase explicitly include transport and handling costs directly attributable to the acquisition of the inventory.
In plain terms: the timber didn’t magically appear in the Chittagong warehouse. It cost $20,000 to buy AND $800 to transport. The true cost of having that timber available for use is $20,800 not $20,000. If we only recorded $20,000, we would be understating the true cost of our inventory.
This is why Carriage Inward is added to Purchases, it becomes part of the cost of the goods themselves, exactly as we saw in our cost sheet article’s “Raw Materials Consumed” calculation, where carriage inward was one of the additions:
Opening Stock of Raw Materials X
Add: Purchases of Raw Materials X
Add: Carriage Inward / Freight In X ← here
Less: Purchase Returns (X)
Less: Closing Stock of Raw Materials (X)
------
Raw Materials Consumed XWhy Carriage Outward is a Selling Expense: The Matching Principle in Action
Now think about carriage outward differently. The $40 delivery cost for the dining table has nothing to do with the cost of making or acquiring that table. The table was already complete, already valued, already sitting in the warehouse ready for sale before the delivery cost was even incurred.
The $40 is incurred after the sale has effectively taken place (or as part of fulfilling it), it’s a cost of the selling and distribution function of the business, just like advertising costs, sales staff salaries, or sales commissions.
Recall the matching principle from our accounting concepts article: expenses should be matched to the period and activity they relate to. Carriage outward relates to the selling activity not the production or acquisition of the goods. It belongs alongside other selling expenses, in the Income Statement, after Gross Profit has already been calculated.
Income Statement (extract)
GROSS PROFIT 91,700
Less: Selling and Distribution Expenses
Carriage Outward 3,200 ← here
Advertising 5,000
Sales Commission 4,500
---------
(12,700)
Less: Administrative Expenses
Salaries 25,000
Rent 8,000
---------
(33,000)
---------
NET PROFIT 46,000Side-by-Side Comparison
| Feature | Carriage Inward | Carriage Outward |
|---|---|---|
| Other names | Freight In, Carriage on Purchases | Freight Out, Carriage on Sales, Delivery Expenses |
| Direction of goods | Goods coming INTO the business (purchases) | Goods going OUT of the business (sales) |
| Relates to | Acquisition of inventory | Distribution/selling of finished goods |
| Where it appears | Trading Account — added to Purchases | Income Statement — Selling & Distribution Expenses |
| Affects Gross Profit? | Yes — directly reduces gross profit | No — only affects Net Profit |
| Underlying principle | Cost principle (IAS 2 — costs of purchase) | Matching principle (period/functional cost) |
| Account classification | Nominal Account (treated as part of cost of purchases) | Nominal Account (expense) |
| Normal balance | Debit | Debit |
Journal Entries
Carriage Inward — Journal Entry
Scenario: A business purchases goods worth $20,000 on credit and pays $800 cash for the transport cost of bringing those goods to its warehouse.
Original Purchase:
Dr. Purchases Account 20,000
Cr. Supplier's Account 20,000
Carriage Inward Paid in Cash:
Dr. Carriage Inward Account 800
Cr. Cash Account 800Notice both Purchases and Carriage Inward are debited both are nominal accounts following the rule “debit all expenses.” When the Trading Account is prepared, both figures will be added together as part of the cost of goods.
Carriage Outward — Journal Entry
Scenario: A business sells goods for $1,500 and pays $40 cash to a delivery driver to deliver the goods to the customer.
Original Sale:
Dr. Customer's Account 1,500
Cr. Sales Account 1,500
Carriage Outward Paid in Cash:
Dr. Carriage Outward Account 40
Cr. Cash Account 40Again, Carriage Outward is debited as an expense but unlike Carriage Inward, it will not be combined with Purchases or Sales in the Trading Account. It sits separately, further down the Income Statement, as a selling expense.
What If the Seller Pays for Delivery and Bills the Customer?
A practical complication: sometimes a seller arranges and pays for delivery, then recharges this cost to the customer as part of the invoice. How should this be treated?
Scenario: A business sells goods for $1,500. It arranges delivery, paying $40 to a courier. It then invoices the customer for $1,540 ($1,500 goods + $40 delivery, recharged).
There are two acceptable approaches, and the choice depends on company policy and the substance of the arrangement:
Approach 1: Gross up both sales and carriage outward
Dr. Customer's Account 1,540
Cr. Sales Account 1,500
Cr. Delivery Income / Carriage Recharged 40
Dr. Carriage Outward 40
Cr. Cash (paid to courier) 40This shows the full $1,540 as revenue, and separately shows the $40 cost net effect on profit is zero from the delivery component, but both the gross revenue and gross expense are visible (useful for understanding the scale of delivery activity).
Approach 2: Net off the recharge against the expense
Dr. Customer's Account 1,540
Cr. Sales Account 1,500
Cr. Carriage Outward (recharge reduces the expense) 40
Dr. Carriage Outward 40
Cr. Cash (paid to courier) 40Here, the recharge simply reduces the net Carriage Outward expense to zero, the $40 the business spent is fully recovered from the customer, so neither party’s profit is affected by the delivery component at all.
Which approach is “correct”? Both are defensible, this is a presentation choice rather than a fundamental accounting principle violation, much like the choice between gross and net presentation of certain transactions discussed under IFRS 15 for principal-versus-agent considerations. What matters most is consistency (recall the consistency concept from our accounting concepts article) whichever approach is chosen should be applied consistently period to period.
A Complete Trading Account Showing Carriage Inward in Context
Let’s put this in the full context of a Trading Account, building on the structure from our Return Inward/Outward article and our cost sheet article.
Data:
- Opening Inventory: $18,000
- Purchases: $160,000
- Carriage Inward (Freight In): $4,200
- Return Outward (Purchase Returns): $6,200
- Closing Inventory: $22,000
- Sales: $250,000
- Return Inward (Sales Returns): $8,500
- Carriage Outward (Delivery Expenses): $3,200
Trading Account for the Year Ended 31 December 2024
Sales 250,000
Less: Return Inward (8,500)
----------
NET SALES 241,500
Opening Inventory 18,000
Add: Purchases 160,000
Add: Carriage Inward 4,200 ← here
Less: Return Outward (6,200)
----------
Net Purchases (incl. carriage) 158,000
----------
Goods Available for Sale 176,000
Less: Closing Inventory (22,000)
----------
COST OF GOODS SOLD 154,000
----------
GROSS PROFIT 87,500
Less: Selling & Distribution Expenses
Carriage Outward (3,200) ← here
----------
84,300
Less: Other Operating Expenses (38,300)
----------
NET PROFIT 46,000Notice exactly where each item lands:
Carriage Inward (highlighted) sits within the cost of goods sold calculation it directly reduces Gross Profit (Gross Profit is $87,500 instead of what it would be $91,700 without the $4,200 carriage inward…
Wait, let’s verify: if Carriage Inward were zero, Net Purchases would be $153,800, COGS would be $149,800, and Gross Profit would be $241,500 – $149,800 = $91,700. With $4,200 carriage inward added, COGS rises to $154,000 and Gross Profit falls to $87,500, a direct reduction of exactly $4,200. Confirmed: Carriage Inward reduces Gross Profit pound-for-pound (or dollar-for-dollar).
Carriage Outward, by contrast, sits after Gross Profit it reduces Net Profit but has zero effect on the Gross Profit figure of $87,500.
Why This Distinction Actually Matters (Beyond Passing Exams)
It might seem like this is purely a classification exercise does it really matter whether a cost reduces Gross Profit vs Net Profit, as long as it reduces some profit figure eventually?
It matters enormously, for several real reasons:
1. Gross Profit Margin Analysis
Gross Profit Margin = Gross Profit ÷ Net Sales × 100
This ratio is one of the most-watched metrics in business, it tells you how profitable your core trading activity is, before considering overheads, selling costs, and admin. If Carriage Outward were incorrectly included in cost of goods sold, it would understate Gross Profit Margin making the core trading activity look less profitable than it actually is, even though the business’s overall profitability (Net Profit) would be unaffected by the misclassification.
Conversely, if Carriage Inward were incorrectly excluded from cost of goods sold (treated as a selling expense instead), Gross Profit Margin would be overstated making the core trading activity look more profitable than reality, with the true cost of inventory hidden lower down the income statement.
2. Inventory Valuation
As established earlier, Carriage Inward is part of the cost of inventory under IAS 2. If it’s excluded from Net Purchases, closing inventory would be undervalued because the carriage cost attributable to unsold goods would never be capitalised into inventory value in the first place. This understates both inventory (an asset on the balance sheet) and, in the following period, potentially overstates cost of goods sold when that undervalued inventory is eventually sold.
3. Cross-Company and Cross-Period Comparisons
If two companies in the same industry classify these costs differently one includes delivery costs in cost of sales, the other in selling expenses their Gross Profit Margins would not be directly comparable, even if their Net Profit Margins were identical. Analysts need to understand these classification choices to make meaningful comparisons (recall the comparability principle from the IASB Conceptual Framework, discussed in our accounting concepts article).
What About Carriage on Fixed Asset Purchases?
A related but distinct scenario: what if the “carriage” relates not to inventory/trading goods, but to a fixed asset purchase say, transporting a new machine from the supplier’s factory to your own factory?
In this case, the carriage cost is capitalised added to the cost of the fixed asset itself, not treated as “Carriage Inward” in the trading account at all.
Example: A company buys a new production machine for $50,000. Transporting the machine to the factory costs $2,000, and installing it costs a further $1,500.
Dr. Machinery (Fixed Asset) 53,500
Cr. Bank/Supplier 53,500(50,000 + 2,000 + 1,500 = 53,500)
This connects directly to our net fixed assets article under IAS 16, the cost of a fixed asset includes all costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating as intended. Transport and installation costs for a fixed asset are capitalised (added to the asset’s cost and depreciated over its useful life), not expensed immediately as “Carriage Inward.”
The general principle that unifies both cases: the cost of transporting something to where it needs to be is added to the cost of that thing whether “that thing” is inventory (Carriage Inward, expensed through cost of goods sold as inventory is sold) or a fixed asset (capitalised, expensed gradually through depreciation over many years).
Common Mistakes to Avoid
Mistake 1: Treating Carriage Inward and Carriage Outward as mirror images, like Return Inward/Outward
Unlike returns (both nominal accounts in the trading account) and discounts (both income statement items below gross profit), carriage inward and carriage outward land in different sections of the financial statements. Do not assume symmetry here.
Mistake 2: Including Carriage Outward in the cost of goods sold
This is the single most common error and it directly distorts Gross Profit Margin, as explained above. Carriage Outward belongs in selling/distribution expenses, below the Gross Profit line.
Mistake 3: Excluding Carriage Inward from inventory valuation
If Carriage Inward is treated as a general expense rather than added to Purchases (and therefore reflected in the cost of inventory), closing inventory will be undervalued a departure from IAS 2.
Mistake 4: Capitalising routine delivery costs for trading inventory
While carriage on a fixed asset purchase is capitalised (added to the asset’s cost), carriage inward on trading inventory is not capitalised as a separate long-term asset it flows through cost of goods sold as inventory is sold within the normal operating cycle, typically within 12 months. The “capitalisation” language applies very differently to fixed assets versus inventory, even though both ultimately reflect the cost principle.
Mistake 5: Confusing carriage with insurance on goods in transit
Insurance paid to cover goods while being transported is a related but separate cost — and is generally treated the same way as carriage (added to purchases if relating to inbound goods, treated as a selling expense if relating to outbound goods) but it is a distinct line item from carriage itself, and the two should not be merged in detailed cost analysis.
Summary
- Carriage Inward (Freight In) = cost of transporting purchased goods into the business. Added to Purchases in the Trading Account — directly affects Gross Profit, per the cost principle (IAS 2).
- Carriage Outward (Freight Out) = cost of transporting sold goods to customers. Treated as a Selling and Distribution Expense in the Income Statement, below Gross Profit — affects only Net Profit, per the matching principle.
- Unlike Return Inward/Outward or Discount Allowed/Received, carriage inward and carriage outward are not symmetrical in their financial statement treatment — they land in different sections entirely.
- Misclassifying carriage outward as part of cost of goods sold understates Gross Profit Margin; excluding carriage inward from inventory cost understates inventory value — both distort key analysis ratios.
- Carriage on fixed asset purchases (as opposed to trading inventory) is capitalised as part of the asset’s cost under IAS 16, depreciated over the asset’s useful life — a different treatment again from carriage inward on trading inventory.
Frequently Asked Questions (FAQs)
Carriage Inward normally carries a debit balance, it is treated as part of the cost of purchases (added to Purchases, which is itself debited as a nominal account/expense).
Carriage Outward also normally carries a debit balance, it is an expense (selling and distribution cost), and expenses are debited per the golden rules covered in our earlier article.
Carriage inward simply means the transport/freight cost paid to bring goods that you have purchased to your business premises. It is added to the cost of those goods.
No. Carriage Outward is deducted after Gross Profit has been calculated, it reduces Net Profit, but Gross Profit itself is unaffected by carriage outward.
These terms generally mean the same thing "Delivery Expenses" is simply an alternative (and often more intuitive) name for Carriage Outward, particularly in modern usage. Both refer to the cost of getting sold goods to customers.
Generally no, carriage inward and carriage outward are concepts specific to businesses that buy and/or sell physical goods (trading and manufacturing businesses). A pure service business (a consultancy, a software company) typically has no "carriage" accounts at all, though it may have analogous "travel expenses" for delivering services, which would be treated as an operating expense similar in spirit to carriage outward.
References
- International Accounting Standards Board (IASB). IAS 2 — Inventories (costs of purchase, including transport and handling costs directly attributable to acquisition). Available at: ifrs.org
- IASB. IAS 16 — Property, Plant and Equipment (costs directly attributable to bringing an asset to its working condition, including delivery and handling costs). Available at: ifrs.org
- Institute of Chartered Accountants of Bangladesh (ICAB). Certificate Level — Financial Accounting Study Material: The Trading Account and Classification of Expenses. Available at: icab.org.bd
- Institute of Chartered Accountants of India (ICAI). Foundation Course — Principles and Practice of Accounting. Available at: icai.org
- National Council of Educational Research and Training (NCERT), India. Accountancy — Class XI Textbook, Chapter on Financial Statements. Available at: ncert.nic.in
- Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. Accounting Principles. 14th edition. Wiley, 2022. (Cost of goods sold and operating expense classification)
- ACCA. Financial Accounting (FA) — Study Text: Preparation of Financial Statements. Kaplan Publishing / BPP Learning Media.
