how to enter the shipping charges

 Generally what you want to do is include the cost of the shipping into the price of the inventory so you do not overstate your COGS at the end of the year for merchandise that was not sold. Most people forget about this and just put the whole thing into COGS and it will be harder for your accountant or bookkeeper at the end of the year. Here is how to do it the easy way (not proper accounting) and the proper accounting way.

Easy way: 1) Make a COGS account call it "Freight In," 2) Make an other charge item call it "freight" and link it up to the "Freight In" COGS, 3) Pull up the original charge on your credit card and include this item in the items tab (for the amount of shipping) but make sure to leave a note in the memo section stating the items that were purchased. This will make the cost flow into your COGS account. At the end of the year your accountant will make an adjustment for amount that was actually sold.

The Proper Accounting Way:

There are three main ways that you can spread out the landed cost of shipping through: weight, cost, or even distribution. Shipping cost is primarily based on weight so in the ideal world you are going to use that as your spread (ie the heavier items are going to cost more to ship and therefore are going to have a higher overall cost). If you dont know the weight, the second best thing is to split it up by cost (ie the more expensive items are going to have more of the shipping charges associated with them). You can calculate this by getting the total amount for each item that you bought and dividing it by the total cost, multiply this percentage by the amount of the shipping and add the value to the total cost of each item, divide the cost by the amount of the items to get the new unit cost. The third best option (and the easiest) is if they charge you a flat fee for the items regardless of weight, in this case you would just divide the shipping charges by the amount of items that you have and spread it out equally.

Here is how to do it on QuickBooks: 1) Make an expense account called "shipping clearing" 2) pull up the amount for your credit card and put the charge of the shipping into the "shipping clearing" expense account, 3) Decide what method you are going to use to spread out the cost and calculate how much you are going to add to every item (consult your bookkeeper on this one) 4) Make an inventory adjustment and SELECT THE DATE OF PURCHASE (very important), click on the box that says "value adjustment" and for the adjustment account select "shipping clearing" 5) Spread out the cost by changing the value of the items that you purchased. What this does is flow the cost of shipping into "shipping clearing" and then on the value adjustment it will empty out the cost and spread it amongst the items.

Again, the second option is the proper accounting way of doing it and its a little complicated if you dont really know how to do it. Ask your bookkeeper for his/her recommendation for spreading out landed cost. Hope this helps and good luck.