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?

Question

Antony Howe

Business

28 June, 00:59

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?

+4

Answers (1)

Know the Answer?

Kennedi Lowery · Answer 1

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