Question

Taha Company purchased $8,000 of inventory under terms FOB destination. Freight cost amounted to $200. The cost of inventory and freight were paid with cash. How will the recognition of this purchase, including freight costs if applicable, will affect the Company’s financial statements?

Answer 1

Answer:

Explanation:

The company must record the acquisition of that inventory, including all the expenses related to the purchase and logistics, up to have them placed in the company´s warehouse.

Therefore, the journal entry to record those transactions are:

Dr  Inventory       8,200

Cr  Cash                              8,200

Notice that freight costs are not considered expenses in this case, as they are capitalized being part of the inventory cost.

Income Statement:  no change

Balance Sheet:   Inventory increased by $ 8,200

                            Cash decreased by $ 8,200

                            Net change:  $ 0