Accounting & Bookkeeping & Small Business Forum

[timfa]

My first post.

Is it acceptable and/or correct, morally or otherwise, to calculate gross profit percent by excluding the freight cost in the sales and COGS section? The freight is a total wash and I know I have to list it as an income and expense item for figuring gross profit dollars, but when figuring the gross profit percent I am wanting to exclude it since it makes a larger gross profit percent. But just because it does that I don't want to mis-inform anyone when I tell them what my gross profit percent is neither.

Any one have any ideas or comments? Thanks.

[RobJ]

timfa wrote: Is it acceptable and/or correct, morally or otherwise, to calculate gross profit percent by excluding the freight cost in the sales and COGS section? The freight is a total wash and I know I have to list it as an income and expense item for figuring gross profit dollars, but when figuring the gross profit percent I am wanting to exclude it since it makes a larger gross profit percent. But just because it does that I don't want to mis-inform anyone when I tell them what my gross profit percent is neither.
My two cents ... include it.

[dp1903]

Freight paid for Sales Items is properly classified as part of the cost of acquiring that item and should be included in Cost of Goods Sold at time of sale. Therefore, it should be included in Cost of Goods Sold when figuring Gross Profit/Loss. If the amount of the freight is "material" or significant in nature [general guideline is equal to or in excess of 5% of COGS] in relation to Cost of Goods Sold then figuring Gross Profit Margin without it would be a material omission in the financial statements.

[igorproper]

Any inbound freight must go into the cost of goods sold. Any freight paid to delivery products to customers is selling expenses and is shown in the operating expenses section.

Note that inbound freight is part of inventory on the balance sheet. So, ideally, you should allocate a portion of freight related to products sold, to the cost of goods sold, and any freight related to inventory not sold, should be kept as an asset on the balance sheet.

Materiality should also be considered, as mentioned above.