{"id":199640,"date":"2025-03-12T07:53:42","date_gmt":"2025-03-12T07:53:42","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=199640"},"modified":"2025-03-12T07:53:44","modified_gmt":"2025-03-12T07:53:44","slug":"freight-costs-paid-by-a-seller-on-merchandise-sold-to-customers-will-cause-an-increase","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/03\/12\/freight-costs-paid-by-a-seller-on-merchandise-sold-to-customers-will-cause-an-increase\/","title":{"rendered":"Freight costs paid by a seller on merchandise sold to customers will cause an increase"},"content":{"rendered":"\n
 Freight costs paid by a seller on merchandise sold to customers will cause an increase<\/code><\/pre>\n\n\n\n
a.in the selling expense of the buyer.<\/p>\n\n\n\n
b.in operating expenses for the seller.<\/p>\n\n\n\n
c.to the cost of goods sold of the seller.<\/p>\n\n\n\n
d.to a contra-revenue account of the seller.<\/p>\n\n\n\n
The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n
Correct Answer:<\/h3>\n\n\n\n
b. In operating expenses for the seller.<\/strong><\/p>\n\n\n\n
Explanation:<\/h3>\n\n\n\n
When a seller pays for freight costs on merchandise sold to customers, it is considered a selling expense<\/strong> rather than part of the cost of goods sold (COGS) or a contra-revenue account. These freight costs, often referred to as “Freight-Out”<\/strong> or “Delivery Expense,”<\/strong> are classified under operating expenses<\/strong> on the income statement.<\/p>\n\n\n\n
Understanding Freight Costs and Their Impact:<\/strong><\/h4>\n\n\n\n
    \n
  1. Freight-In vs. Freight-Out:<\/strong><\/li>\n<\/ol>\n\n\n\n
      \n
    • Freight-In<\/strong>: When a company purchases inventory<\/strong> and pays for the shipping costs, these expenses are added to the cost of goods purchased<\/strong> and later included in cost of goods sold (COGS)<\/strong> when the inventory is sold.<\/li>\n\n\n\n
    • Freight-Out<\/strong>: When a company sells inventory<\/strong> and covers the shipping costs, these costs are recorded as selling expenses<\/strong> under operating expenses.<\/li>\n<\/ul>\n\n\n\n
        \n
      1. Why Freight-Out is an Operating Expense:<\/strong><\/li>\n<\/ol>\n\n\n\n
          \n
        • Freight-Out is a cost incurred to deliver products to customers<\/strong>, which is part of the company’s operational activities but not directly tied to the production of goods.<\/li>\n\n\n\n
        • It does not<\/strong> impact revenue directly, nor is it deducted from sales revenue as a contra-revenue account<\/strong> (such as sales discounts or sales returns).<\/li>\n\n\n\n
        • Instead, it falls under selling expenses<\/strong>, a category of operating expenses, because it is an expense related to making the sale happen.<\/li>\n<\/ul>\n\n\n\n
            \n
          1. Impact on Financial Statements:<\/strong><\/li>\n<\/ol>\n\n\n\n
              \n
            • Freight-Out increases selling expenses<\/strong>, which are subtracted from gross profit<\/strong> to determine operating profit<\/strong>.<\/li>\n\n\n\n
            • Higher freight expenses reduce net income<\/strong>, affecting profitability.<\/li>\n<\/ul>\n\n\n\n
              Conclusion:<\/strong><\/h3>\n\n\n\n
              Since the seller is responsible for paying the freight charges, the cost is considered an operating expense<\/strong> under selling expenses<\/strong>. Therefore, the correct answer is option (b) \u2013 an increase in operating expenses for the seller.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"
              a.in the selling expense of the buyer. b.in operating expenses for the seller. c.to the cost of goods sold of the seller. d.to a contra-revenue account of the seller. The correct answer and explanation is : Correct Answer: b. In operating expenses for the seller. Explanation: When a seller pays for freight costs on merchandise […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-199640","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/199640","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=199640"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/199640\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=199640"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=199640"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=199640"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}