Carriage Inwards and Carriage Outwards are important terms if you are into accounting because though both are expenses still these both terms confuse many people regarding the adjustment which one has to make in the books of accounts. Given below are some of the differences between the two –
- Carriage inwards means those expenses which happen when the supplier buys the product from the company or manufacturer and when those goods are transported by the company to the supplier’s warehouse it will lead to expense which is called carriage inwards. While carriage outwards refer to those expenses which the supplier has to incur when he or she sells to the final customer because transportation from supplier’s warehouse to the doorstep of customer also entails expenses.
- Carriage inward is debited to trading account of the company while carriage outward is debited to profit and loss account of the company.
- While calculating cost of goods sold carriage inwards are categorized as direct expense and they are taken into account which is not case with carriage outwards as they are considered as indirect expense and excluded from calculation of cost of goods sold.
- Carriage inwards is a part of cost of goods sold and therefore it is an expense related to manufacturing or making good ready for sale whereas carriage outwards is categorized as selling and distribution expense.
As one can see there are many differences between the two terms and therefore before making any entry in the books of accounts one should clearly understand both the terms and then proceed to make any adjustments regarding this types of costs because any mistake can lead to wrong conclusions regarding the gross profit which in turn will affect other related components of the profit and loss account and balance sheet.