Freight In vs. Freight Out: Accounting Treatment, Costs, and Examples
Import Export
Freight in is the cost of transporting goods into a business, usually from a supplier. Freight out is the cost of transporting goods from the business to its customers. In common accounting usage, freight in is included in the cost of inventory, while freight out is generally treated as a selling or fulfilment cost. The distinction is about the direction of the goods relative to your business—not whether they travel by truck, rail, air, or ship.
The terms freight inward and freight in mean the same thing. Likewise, freight outward and freight out refer to the same outbound customer-delivery cost.
Freight In vs. Freight Out: The Simple Difference
Freight is the cost of moving goods. It may relate to transport by road, rail, air, ocean vessel, or another commercial transport service. Whether that transport is labelled freight in or freight out depends on where the goods are moving in relation to the business recording the cost.
- Freight in (freight inward): transport costs incurred to bring purchased goods or inventory from a supplier into the business.
- Freight out (freight outward): transport costs incurred to send goods that have been sold from the business to a customer.
Example of freight in
A retailer buys 500 lamps from a supplier. The retailer pays to have the lamps carried by lorry from the supplier's warehouse to its own distribution centre. That transport charge is freight in because the goods are entering the retailer's inventory.
Example of freight out
The same retailer later sells lamps through its website and dispatches an order to a customer. The delivery cost incurred by the retailer to get the sold lamps to that customer is freight out.
Both examples could involve road transport, but the labels would be unchanged if the goods moved by air, rail, or ocean. A shipment arriving by sea can be freight in; a shipment sent by courier can be freight out. The transport mode does not determine the classification—the business direction does.
How Freight In and Freight Out Are Generally Accounted For
The important accounting difference is the connection to inventory. As explained in this guide to freight-in, freight-out and general-ledger treatment, freight in is generally capitalised as part of inventory cost rather than recognised as an immediate period expense. It becomes part of cost of goods sold (COGS) when the related inventory is sold.
Freight out, by contrast, is generally treated as a selling cost and is commonly presented within selling, general, and administrative expenses (SG&A). It relates to fulfilling a customer sale rather than acquiring inventory for resale.
| Point of comparison | Freight in / freight inward | Freight out / freight outward |
|---|---|---|
| Direction of goods | Into the business from a supplier or other source | Out of the business to a customer |
| Common business event | Receiving purchased inventory | Delivering goods that have been sold |
| General treatment | Included in inventory cost | Generally a selling or fulfilment cost, often in SG&A |
| When it affects expense or COGS | Flows into COGS when the related inventory is sold | Generally recognised as an outbound selling/fulfilment cost in accordance with the business's accounting policy |
Why the timing matters
Capitalising freight in means the cost follows the inventory. If stock remains unsold at period end, the related inbound transport cost remains within inventory cost. When the stock is sold, that cost is recognised through COGS alongside the cost of the goods themselves.
Recording inbound freight as an immediate expense when it should be included in inventory can affect inventory valuation and the timing and presentation of COGS and gross margin. Conversely, mixing customer-delivery costs into inventory can obscure the cost of selling and fulfilling orders.
This is a general explanation, not a substitute for a company's accounting policy or applicable reporting framework. Account names, ERP configurations, and bookkeeping workflows vary, which is one reason informal online discussions often give apparently conflicting answers. Start with the underlying inbound-versus-outbound logic, then follow your organisation's chart of accounts, documented accounting policy, and reporting requirements.
There is also an important presentation qualification: the accounting guidance underlying this article notes that freight out may be included in cost of sales under GAAP if that presentation is applied consistently. It is therefore not accurate to say that freight out is universally prohibited from cost of sales. A business should apply its established policy consistently and obtain professional accounting advice where its reporting treatment is uncertain.
What Freight Costs Can Include—and Why Inbound and Outbound Costs Should Be Tracked Separately
Freight in and freight out are directional and accounting labels, not fixed price categories. Neither term tells you what a shipment will cost. Actual charges depend on the goods, origin, destination, shipment size, transport mode, service arrangement, and charges attached to the movement.
For ocean movements, common freight-related charges can include a Bunker Adjustment Factor (BAF), which relates to fuel-cost changes; a Currency Adjustment Factor (CAF), which relates to exchange-rate changes; and Terminal Handling Charges (THC) for cargo processing at ports. Freightos' overview of common freight charges and fees describes these as examples of ocean-freight charges, not as a complete list that applies to every shipment.
As a broad transport-mode comparison, the same source notes that ocean freight is typically less expensive than air freight for larger volumes when the shipper can accept a longer transit time. That is a general planning observation, not a universal pricing rule or a substitute for a shipment-specific quotation.
Separate tracking is useful because supplier-to-business transport and customer-delivery transport answer different commercial and accounting questions. At a minimum, a business should be able to distinguish:
- transport and related charges associated with bringing inventory in from a supplier;
- delivery and fulfilment charges associated with sending sold goods to customers; and
- non-freight charges, such as import taxes, duties, and administrative fees, that may appear on the same shipment.
For a real transaction, ask a freight forwarder or customs broker for a shipment-specific breakdown. The charges can vary materially according to the goods, route, origin, destination, and shipment circumstances. For a practical route-level follow-up, see this example of shipping costs, timing and customs charges from Australia to the US.
Freight In vs. Freight Out and Taxes: What Not to Confuse
Freight in and freight out do not themselves mean tax, tariff, or customs duty. They describe the direction of transportation costs and, in an accounting context, their general relationship to inventory or selling activity.
An import shipment can involve both inbound freight and import-related charges. Customs duties are taxes imposed on imports and can vary by country and item. VAT or GST, as well as import or export fees, may also be payable depending on the transaction. These amounts may appear alongside transport charges on a shipment file or invoice, but they should not be treated as interchangeable with the freight charge itself.
For example, a business importing inventory may pay ocean freight to bring goods to its warehouse, as well as customs duty and other applicable import charges. The transport element is freight in; the duty, VAT/GST, or other fee is a separate category that requires its own analysis.
Readers dealing with U.S. customs questions can consult U.S. Customs and Border Protection's official publication on proper deductions for freight and other costs. That reference is useful for investigating customs matters, but the treatment of freight for customs valuation, income-tax deductibility, or tax calculation should not be assumed from the freight-in/freight-out label alone.
In particular, this article does not determine whether a cost is tax-deductible, whether freight is included in customs value, how VAT or GST is calculated, or how a specific country treats a particular transaction. Those outcomes are jurisdiction-, transaction-, and valuation-specific. Seek advice from a qualified tax adviser, customs broker, or the relevant customs authority. If your shipment involves U.S. courier imports, our guide to how U.S. duties and courier charges can apply to an import shipment may also help identify the kinds of charges to check.
Who Pays Freight Out?
Freight out means the cost incurred to deliver product to a customer, but that label alone does not establish which contracting party ultimately pays or bears the charge. A seller may incur an outbound delivery cost, recover an amount from the customer, include delivery within its selling price, or make another arrangement under its contract and shipping terms.
Responsibility for a freight charge depends on the agreed sales contract, shipping terms, and, in international trade, the relevant delivery arrangement. The research supporting this article does not establish a universal seller-versus-buyer rule, so it would be misleading to say that either party always pays freight out. Review the relevant agreement and obtain appropriate commercial, logistics, or legal guidance where responsibility is unclear.
Practical Takeaway
Use one question to make the initial distinction: are the goods moving into your business, or are they moving to your customer? Goods coming in normally point to freight in; sold goods going to a customer normally point to freight out. From there, keep freight charges separate from customs duties, VAT/GST, and other fees, and apply your documented accounting policy consistently.
