Carriage Inward

by Laxmann Nalamadi Istari
(Mumbai)

Q: Carriage inward comes under which category?

A: Well, first let's make sure we understand what "carriage" is - carriage simply means transport costs.

So carriage inwards would be transport costs for purchasing an asset.

One key rule when valuing an asset is that the cost of an asset includes all costs necessary to get the asset to your business and into a condition in which it can be sold.

So if you had the following expenditures:
- Purchase price of manufacturing machine $40,000
- Shipping transport costs $500
- Import taxes and duties $2,000
- Transport costs by rail $200
- Installation costs $1,000

Then the total cost of the manufacturing machine would be $43,700 (all the costs above added together).

So "carriage in" or "freight in" or "transport costs in" (or whatever similar term they use) is a part of the cost of an asset.

The only exception to this that I'm aware of is when you purchase inventory and you use the periodic system of inventory accounting. Then the transport cost is recorded as a separate expense account.