Transportation cost on sales return

[MH RONY]

when customers return goods previously bought by them require the company that initially sold to incur transportation cost to carry that goods from purchaser's premises to Seller's premises.My question is: how should this transportation cost be treated? should it be treated as carriage inward?

thanks in advance

 

[Fidget]

Unlikely. Carriage inwards is the cost to the seller for their supplier delivering the goods to them, so it has nothing to do with the seller then sending goods to the customer.

Could be that the cost of delivering the goods to the customer was passed on to the customer as part of the sale, then returning the goods is a reversal of that entry if the company is then picking up the tab for the cost of the return.

Or perhaps the cost of delivering the goods to the customer was borne by the company in a 'free delivery' service and offers a 'free returns' service, then both the cost of delivering the goods, and the cost of returning them is borne by the company.

All in all, how you treat the cost of a customer returning goods all depends on how carriage outwards ie the cost to the seller of sending the goods to the customer, was treated in the first place.

 

[MH RONY]

thanks fidget for his answer but i am still in the darkness as i was.could u pls clearly state how this cost should be treated? i am trying to clarify the scenario as a means of an example.Say a company,X co.,sold goods to mr Z (one of its customer) and x co incurred $50 to deliver the goods to mr. Z's premises this cost ware treated as carriage outward in the X co's book.After some days mr z returned the whole goods to x co on the allegation of having fault in the products.X co again incurred $55 to return back this goods to x co's premises.My question is how this $55 should be treated in x co's book?

Thanks

 

[Fidget]

In that scenario it's another overhead similar to carriage outwards, so record it in an account called "Carriage on Returns" or something similar so that it differentiates between the original cost of sending the goods to the buyer and the cost of carriage on goods returned.

 

[MH RONY]

Thank u very much...fidget

 

[Anurag Maheshwari]

when customers return goods previously bought by them require the company that initially sold to incur transportation cost to carry that goods from purchaser's premises to Seller's premises.My question is: how should this transportation cost be treated? should it be treated as carriage inward?

thanks in advance

Dear Sir,

Theoretically at the time of recognising the sale you should divide the sale revenue in two parts one for good and other for freight.
But practically you should charge the expenditure to profit & loss account or deduct from the sales revenue.

 

[Counterofbeans]

when customers return goods previously bought by them require the company that initially sold to incur transportation cost to carry that goods from purchaser's premises to Seller's premises.My question is: how should this transportation cost be treated? should it be treated as carriage inward?

thanks in advance

Expense it under the name of any account you wish. Where to put the cost in terms of a reduction of sales or as a cost of sales is a company policy decision which should be disclosed in the Notes to the financials

While you can try and craft an argument that it's an inventoriable cost, ultimately you'll likely fail, as you'll probably run into a LCM issue.

If it were me, I'd ask operations if this information helped them run the business or not. If so, breaking it out into a separate account makes sense. If not, just record in the same Freight Out expense account as normal.

 

[Samir]

If it were me, I'd ask operations if this information helped them run the business or not. If so, breaking it out into a separate account makes sense. If not, just record in the same Freight Out expense account as normal.

This is my thinking as well. If this doesn't happen too often (which it doesn't sound like it does), you can just record it like any other freight expense (except that it happened twice).