What is Meant by Carriage Inwards and Carriage Outwards?
Carriage refers to the cost of transporting goods into a business from a supplier and the cost of transporting goods from a business to its customers. The amount of transportation expense settled by the purchaser of the goods is called Carriage Inwards. The cost incurred by the seller of goods to deliver the goods sold to customers is called Carriage Outwards. The amount of Carriage Outward is posted in the Profit and Loss Account as an indirect expense and the amount of Carriage Inward in Trading Account as a direct expense. Since both the amounts are registered as expenses, they are recorded as debit balances.
What is Carriage Inwards?
If you are looking to understand “what is carriage inwards?”, then it is quite simple. It is the handling and shipping charges or the transport cost which a company or an individual incurs when there is a purchase of the goods or raw materials. It refers to the expense that is incurred to bring the purchased goods into the premises of the business or to the required location. Carriage inward is a nominal account, and it is also known as transportation-in or freight-in. It is evaluated as a direct expense and Carriage inward in trading account reflects on the debit side of it. This is the fundamental answer to “what is carriage inwards?”
What is Carriage Outwards?
Now we know about carriage inwards, the next question comes is, what is carriage outwards? The exact opposite of carriage inwards is termed carriage outwards that is it refers to the handling and shipping costs that a company incurs while transporting the goods to a client. In the income statement, the cost of carriage outwards usually occurs within the cost of goods sold. Carriage outward is an example of overhead, and it is treated as an indirect expense. Carriage outwards can also be called freight-out or transportation-out.
What is the Accounting Impact and Profitability Impact of Both Carriage Inwards and Carriage Outwards?
The carriage inward in trading accounts is accounted for in the books of accounts of the buyer, while the carriage outwards is accounted for in the books of the accounts of the seller. The carriage inward in the trading account is debited, while the carriage outwards is debited to the profit and loss account.
The gross profitability of the buyer is impacted by the occurrence of carriage inwards, while the net profitability of the seller is impacted by the occurrence of carriage outwards.
With the above-mentioned definitions, we can now understand the difference between carriage inwards and carriage outwards.
Solved Examples
Q1. Mention the major difference between carriage inwards and carriage outwards.
There are numerous differences between carriage inwards and carriage outwards. Both of the terms are opposite of each other, and their functions differ at several levels such as:
The carriage inward refers to the transport or freight cost which the buyer incurs on the purchase of goods or raw materials, while the carriage outward refers to the cost of transport or freight which the seller incurs while delivering or shipping the goods sold by it.
When we talk about what is carriage outwards?, it is the carriage outward is incurred on the inventory of the seller while the carriage inward is acquired on purchase of capital goods, raw materials etc.
The seller incurs the carriage outwards at the time of sale or delivery of goods, while a buyer incurs the carriage inwards during the time of purchase.
Carriage inwards is a direct expense while the carriage outwards is vice-versa. That is, it is an indirect expense.
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The difference between carriage inwards and carriage outwards is demonstrated in the above image. One can easily spot that both are opposite of each other and goes vice-versa. The carriage inwards is the inventory or the cost of sales, while the carriage onwards is the selling cost. Both the terms have several differences. The carriage inwards can be taken as the transportation cost which occurs while transferring the goods from the location of the supplier to the location of the buyer, whereas the carriage outwards is the opposite of this. The carriage outwards is borne during the sale of goods, while the other one occurs during the purchase of goods.
Do You Know?
Carriage means shipping or transport expenses. It is the cost of transporting or shipping goods from a supplier to a business and the transportation cost of goods to the customers from a business. Another term used in accounting is the "Railage inwards”. The term is British, and it is defined as the transportation cost by a train (rail). In simpler terms, it refers to the expense of transporting goods to your desired business location through a train.
FAQs on Carriage Inwards vs. Carriage Outwards
1. What is the fundamental difference between Carriage Inwards and Carriage Outwards?
The primary difference lies in the purpose of the transportation cost. Carriage Inwards refers to the transport cost incurred by a business to bring purchased goods or raw materials into its premises. In contrast, Carriage Outwards is the transport cost incurred by the business to deliver goods out to its customers after a sale has been made.
2. Is Carriage Inwards considered a direct or an indirect expense?
Carriage Inwards is always treated as a direct expense. This is because it is a cost directly associated with acquiring goods for resale or production. Since it's a direct cost, it is debited to the Trading Account to help calculate the Gross Profit or Gross Loss of the business for the accounting period 2025-26.
3. Where are Carriage Inwards and Carriage Outwards shown in the Final Accounts?
In the final accounts, their placement depends on their nature:
- Carriage Inwards: Being a direct expense, it is recorded on the debit side of the Trading Account.
- Carriage Outwards: Being an indirect (selling) expense, it is recorded on the debit side of the Profit & Loss Account.
4. Could you provide a real-world example of Carriage Inwards?
Certainly. Imagine a clothing store in Mumbai purchases 500 shirts from a manufacturer in Tirupur. The freight or shipping cost of ₹10,000 paid by the Mumbai store to transport these shirts from Tirupur to its warehouse is a perfect example of Carriage Inwards. This cost is added to the total cost of the shirts purchased.
5. Why is Carriage Inwards added to the cost of purchases but Carriage Outwards is treated as a separate selling expense?
This distinction is based on a core accounting principle. Carriage Inwards is a necessary cost to bring an asset (inventory) to its usable and saleable condition and location. Therefore, it is capitalised as part of the asset's cost. On the other hand, Carriage Outwards is an expense incurred to facilitate sales and distribute the product. It is not related to acquiring the asset but to selling it, which is why it's classified as an indirect, operational expense under selling and distribution.
6. How do Carriage Inwards and Carriage Outwards impact a company's profit calculations differently?
Their impact is seen at different stages of the income statement:
- Carriage Inwards is deducted before calculating Gross Profit. A higher Carriage Inwards cost will directly reduce the Gross Profit.
- Carriage Outwards is deducted after calculating Gross Profit. It has no effect on Gross Profit but directly reduces the Net Profit of the business.
7. In a trial balance, what is the accounting treatment if an item is just listed as “Carriage” without specifying inwards or outwards?
This is a common point of confusion for students. As per standard accounting convention, if the term “Carriage” is used alone without any qualification, it is assumed to be Carriage Inwards. Therefore, it should be treated as a direct expense and debited to the Trading Account.
8. Is Carriage Outwards always a debit entry in the books of accounts?
Yes. According to the golden rules of accounting for nominal accounts, all expenses and losses are debited. Since Carriage Outwards represents a selling and distribution expense for the business, it is always recorded as a debit in the Profit & Loss Account.
