There are a variety of ways freight is handled when entering a purchase, depending on if the freight vendor is the same as the product vendor.
Product Vendor is the Freight Vendor
It is easy to apply the freight cost to the product if the product vendor also delivers the product. There are two cases here:
- Freight figured into cost of product – Process the purchase. Freight in this case is not separated and nothing posts to the freight expense account.
- Freight as a separate line item – Indicate actual freight (Actual Total$ or Actual $/Unit) at the Purchase Invoice screen and then the cost is pro-rated over all the items on the bill. In this case, the general journal entry includes a debit to the freight expense account for the amount of the freight.
Freight Vendor is a Third Party
In this case, the amount of freight may not be known at the time the product invoice is received. There are two choices in this case:
- Estimated Freight – The freight cost can be estimated by entering estimated freight at the Purchase Invoice screen and selecting Estimated $/Unit or Estimated Total $. This makes a separate general journal entry debiting the freight expense account and crediting the estimated freight liability account. When the actual freight bill comes, use the A/P / Reconcile Estimated Freight utility to create the A/P bill using the estimated freight G/L account. By using the Estimated Freight function, the freight is expensed in the same fiscal period as the product.
- Enter a new Purchase – Optionally enter a Purchase Invoice for the product that was hauled. Enter a zero quantity of the product and enter the freight cost in the Freight area with Actual Total $ selected, and then choose Apply Freight. This adjusts the cost of the product (on-hand minus unprocessed) by the freight expense.
If the charge for Freight is included in the cost of the product on the Purchase Invoice, then actual or estimated Freight does not need to be used. Simply enter the Purchase Invoice with the costs the vendor indicates.
Actual Freight
- Actual Freight is used when the product vendor shipped the product and the Invoice includes a separate line item for the Freight charge (the Freight is not figured into the unit cost).
- The actual Freight charge is added to the Net amount due on the Purchase Invoice.
- If the Purchase Invoice contains multiple line items, the Freight cost is prorated across all items and included in the cost of the products.
- G/L posting for the Purchase Invoice is a debit to the Cost of Goods/Purchases # account(s) of the department(s) for the cost of the products, a debit to the Freight/Add On # account(s) of the department(s) for the cost of the Freight, and a credit to Accounts Payable.
Estimated Freight
- Estimated Freight is used when the Freight will be charged by a vendor (3rd party vendor) that is not the product vendor. In these cases, the Freight charge amount may or may not be known.
- Even if the exact amount of the Freight charge is known, estimated Freight must be used because the bill for freight comes from a different vendor than from who billed for the product.
- The estimated Freight charge is not added to the Net amount due on the Purchase Invoice.
- If the Purchase Invoice contains multiple line items, the estimated Freight cost is prorated across the line items and included in the cost of the products.
- When the Purchase Invoice is saved, two journal entries are created. One entry debits the Cost of Goods/Purchases # account(s) of the department(s) and credits Accounts Payable. The second entry debits the Freight/Add On # account(s) of the department(s) and credits the location's Estimated Freight liability account.
- When the bill from the third party freight vendor is received, navigate to A/P / Reconcile Freight/Additional Charges to reconcile the estimated Freight amount to actual and post the freight bill.
- If there is a difference between the estimated and actual Freight amounts, a journal entry is automatically posted for the difference using the Inventory Department’s Cost of Goods/Purchases # account and the location’s Estimated Freight liability account.
Note: The costs on the individual products are not updated by this difference between estimated Freight and actual Freight. If the difference is a large amount, it is best to void the Purchase Invoice, and re-enter it with the applicable estimated Freight so the costs of the products are appropriately updated.
Freight - Another Method
- Use this method if freight will be billed through a vendor that is not the product vendor, and the Freight amount is not known.
Note: Although this process gets the freight bill entered in the system and the Freight cost onto the product, there are circumstances where this process could have undesirable results on the cost of the product. - Enter the Purchase Invoice for the product(s) just as would be done for any product without Freight. In other words, don't apply any Freight.
- When the freight bill arrives, enter a Purchase Invoice for the Freight Vendor and the products from the original Purchase Invoice at zero quantities.
- In the bottom left, choose Actual Total$ Freight, and enter the total Freight charge. When the Freight is applied, it will all be pushed to the last line item on the Purchase Invoice.
- In the Freight column in the Purchase Invoice grid, enter the correct amount of Freight for each line item.
- This updates the cost of the product and creates an A/P Bill for the Freight Vendor.
Prorating Freight
When entering freight per unit on a Purchase Invoice or Purchase Order, the freight cost is prorated based on quantity of each line item. When entering freight as a total dollar amount, it is prorated based on the total dollars of line items.
The Purchase Receipt behaves the same way if there is an estimated cost entered for each line item. If there is no cost and the products are not in estimated average cost departments, Agvance will prorate the freight based on the last cost of each product.
For freight to be distributed differently, edit the Freight column in the grid for each of these transactions. To access the column, select any cell in the Product grid and press the Right Arrow key until the Freight column is visible.
