Carriage Inward vs Carriage Outward

Carriage is a popular term in accountancy used for transportation costs of the goods purchased and sold helping maintain a financial report. Carriage inwards and carriage outwards are both types of carriages, focusing on direct expenses and selling expenses. All the accurate cost calculations, strategies on the pricing, and analysis of the profit are done with the help of understanding the carriage. They prove very useful in maintaining the Trading and Profit & Loss account. 

 

What is the meaning of Carriage Inwards? 

Carriage inwards means the transportation cost of the raw materials and goods from suppliers, suffered by the business. In simpler terms, if a buyer is purchasing something then the delivery charge is the carriage inwards, which is mentioned in the debit section of the general ledger.

The key features of carriage inwards are: 

• While maintaining the financial record, it is written as a direct expense and added to the Cost of Goods Sold ( COGS ). 
• It is a direct expense that is written under the Cost of Goods Sold (COGS) 
• It is mentioned in the Trading Account. 

 

Carriage Inwards in Final Accounts 

The final accounts for carriage inward consist of two financial statements: 

• Trading account: Records direct expenses and revenue. 
• Balance sheet: Records assets, liabilities, and capital 

 

Carriage Inwards in Trading Accounts 

• The carriage inwards is recorded on the debit side under direct expenses.
• It is added to purchases to calculate the Cost of Goods Sold (COGS) 
• It does not appear in the Profit & Loss Account since it is related to the cost of inventory. 

 

Format of Trading Account 

 

The Format of a Trading Account in terms of Carriage Inwards is: 

 

Dr. ( Debit Side )	₹	Cr. ( Credit Side )	₹
Opening Stock	20,000	Sales	2,00,000
Purchases +	1,50,000	Sales Returns -	(5,000)
Purchase Returns -	(10,000)	Net Sales ( A )	1,95,000
Carriage Inwards +	5,000
Wages & Direct Expenses +	10,000
Total COGS for Sale	1,75,000
Closing Stock -	(30,000)
COGS ( B )	1,45,000
Gross Profit ( A - B )	50,000	Gross Profit ( A - B )	50,000

 

Example of Carriage Inwards 

A company purchases raw materials for ₹ 1,00,000 and pays ₹ 6,000 for a delivery fee or carriage inwards then in the trading account, the expense is recorded as: 

Dr side of trading account: 

• Purchases: ₹ 1,00,000
• Carriage inwards: ₹ 6,000
• Total cost: ₹ 1,06,000

This affects the gross profit. 

 

What is the meaning of Carriage Outwards? 

The carriage outwards is the selling expense by the business, which is analyzed to manage the distribution cost-effectively. In simple terms, it is the transportation cost of delivering goods to the customers. 

The key features of carriage outwards are: 

• It is treated as an indirect expense. 
• It is recorded in the profit & loss accounts as selling expense 
• It reduces a company’s net profit. 

 

Carriage Outwards in Final Accounts 

The final accounts for carriage outward consist of two financial statements: 

• Profit & loss account: Carriage outward is recorded on the debit side under selling expenses. It does not affect the COGS. 
• Balance sheet: Carriage outward does not appear in the balance sheet. 

 

Carriage Outwards in Profit & Loss Accounts 

• It is recorded on the debit side. 
• It is an indirect expense 
• Affects net profit. 

 

Format of Profit & Loss Account

The Format of  a Profit & Loss Account with Carriage Outwards is: 

 

Dr. ( Expenses )	₹	Cr. ( Income )	₹
Gross Profit	50,000	Net Sales	2,00,000
Selling & Distribution Expense
Carriage Outwards	5,000
Advertisement Expense	2,000
Other Selling Expense	3,000
Total Selling Expense	10,000
Salary	5,000
Rent	3,000
Misc Expense	2,000
Total Administrative Expense	10,000
Total Expense	20,000	Other Income	5,000
Net Profit	35,000	Net Profit ( A - B )	35,000

 

Example of Carriage Outwards 

An electronics business sells televisions and delivers them to customers. One time the delivery charge came as 5,000, this is carriage outwards and is recorded in the profit and loss account. 

• Dr. Carriage Outwards: ₹ 5,000 ( Expense ) 
• Cr cash/bank: ₹ 5,000 ( Payment ) 

 

Read More: 

• Partnership Deed
• Equity Shares
• Negotiable Instruments Act 
• 14 Principles of Management

 

Frequently Asked Questions ( FAQs ) 

State the main differences between Carriage Inwards and Carriage Outwards

The key differences between Carriage Inwards and Carriage Outwards are: 

 

Carriage Inwards	Carriage Outwards
Cost of transporting goods into the business	Cost of transporting goods to customers
Direct expense	Indirect expense
Trading account	Profit and loss account
Affects COGS	Affects net profit

 

How are Carriage Inwards and Carriage Outwards recorded in the final accounts? 

Carriage Inwards: Added to purchases in trading accounts 

Carriage Outwards: Added to selling expenses in the profit and loss account.

 

Why are Carriage Inwards and Carriage Outwards considered as direct and indirect expenses? 

Carriage Inwards: It is a direct expense because it is directly related to purchasing the inventory

Carriage Outwards: It is an indirect expense because it is related to selling and distributing finished goods.