All about inbound freight cost amortisation
Contents
What are freight costs and landed costs?
What is freight cost amortisation?
When can freight costs be amortised?
Overview
What are freight costs and landed costs?
Inbound freight costs are the expenses incurred to transport stock into your warehouse. These may include transportation fees, customs duties, and other associated charges, but won't include any tax amounts (e.g. VAT or GST). If these costs become significant, they are best accounted for by spreading them out over the received goods.
When goods are revalued in this way, their cost in stock represents their true landed cost and your inventory value increases.
The landed cost of an item is its purchase price plus its portion of any corresponding freight costs. In a sense, it's the amount of money actually spent in receiving that item.
What is freight cost amortisation?
Amortisation of freight costs is the process of revaluing those costs directly to the individual costs of the received goods.
Shipping will still display as an immediate expense but via a recovery transaction, this net cost will be pulled out of your profit and loss and apportioned over to the stock on hand asset account in your balance sheet.
Later when you dispatch the stock (or manufacture an item that consumes this stock) the cost will end up in your Cost of Goods Sold.
Timing of amortisation
When can freight costs be amortised?
Freight costs must be spread over the cost of inventory before that inventory is consumed. If the stock is already consumed, it can’t be revalued and it will have already been consumed at a cost excluding the freight. If you were to distribute the freight invoice afterwards; the cost would only be applied to remaining stock, which would over-inflate remaining stock costs.
A common challenge is if the invoice for freight is not yet received by the time you need to consume the stock. If this is the case, you may need to estimate your freight costs.
Otherwise, to prevent stock from being consumed until an invoice is received and their freight costs have been collected and accounted for, you can use an in-transit warehouse.
Estimating your freight costs
Accounting for freight costs before stock is consumed can be difficult if freight invoices are not received promptly. If freight invoices are not received in time, you can create an estimate freight invoice prior to receiving the actual invoice from the supplier.
When estimating costs, ensure:
- You have a robust process in place to make sure estimate invoices are not paid or doubled up.
- You understand the inventory, accounting and tax implications of making estimates without the actual paperwork.
- The values in your stock revaluation process are modified to include an estimate for any other expected freight.
When estimating freight for the stock revaluation process, your freight clearing account will enter a negative balance. This negative balance will be restored when the actual invoices are received and recorded.
You have two main options for estimating freight costs. You can either:
- Use the cost of freight from the purchase order; or
- Use the cost of freight from previous orders.
Using the purchase order
Where possible, use a purchase order to confirm the cost of freight. If the supplier has confirmed the purchase order and there are no exclusions or exceptions, you can rely on this estimate. The purchase order value can then be used in the freight recovery process.
Using previous orders
If you have freighted the same goods previously, you can rely on past freight charges as an estimate when performing amortisation calculations.
Using an in-transit warehouse
Simply put, an in-transit warehouse is warehouse that you receive goods into before they are available for general use.
Once invoices for the goods and their freight are received and processed, they are transferred to your main warehouses ready to be used.
For more information, please see our How to use an in-transit warehouse for tracking and costing article.
Amortisation process
1. Receive your goods into stock
Receive your goods into stock as normal using either a Receive or Supplier invoice, ensuring:
- Stock is not consumed until the freight process is complete. One way to do this is through an in-transit warehouse. Please see Using an in-transit warehouse for more information.
- Your freight costs are separated from the costs of goods.
- The costs of goods are accurate. Freight revaluations are difficult to adjust once complete.
2. Receive your freight costs
Receive your freight costs into a freight clearing account, a single general ledger account used specifically for freight amortisation, ensuring:
- Freight costs are as accurate as possible. If you have not yet been invoiced for the freight costs, estimate them as best as you can. Please see Estimating your freight costs for more information.
- Any tax (e.g. VAT/GST) amounts are not included in the value received to your freight clearing account.
- All freight costs that you want to amortise are captured, either on the same invoice as the items being freighted, or on one or more separate invoices.
- Everything is dated appropriately for your financial reports.
There's no requirement to amortise all your freight costs. You may choose to expense some immediately and spread others over your inventory.
The account you use as your freight clearing account will typically be an expense account. Once the freight costs have all been accounted for, your freight clearing account in the general ledger will contain the total value of freight still to be amortised.
3. Revalue your items
Using SA3430 - Invoice costing distribution, remove the total freight cost from your freight clearing account and distribute it over your selected items.
For a full breakdown of this process, please see our video guide under How to manage freight or duty amortisation / distribution over imported goods for landed costs.
This report allows you to:
- Nominate the value to be distributed (either by entering a list of supplier invoice numbers, or by entering the value directly).
- Filter the items to be selected based on the receives, purchase orders, or stock transfers they are included on.
- Choose how you want the freight costs to be distributed (either evenly by cost, weight, or quantity).
Once you have selected your items on the report, use Create Stock revaluations for selected Items from the Action menu to create a Stock revaluation for each item with the necessary amounts pre-filled.
FAQ
What if I have performed my revaluation and discover additional freight costs?
Carry out a further revaluation for just the additional costs. If you have already started to consume the goods, be aware that some of your goods have been consumed at the lower cost. The remaining goods will now have a higher cost.
What if the freight value has changed after revaluation?
Either post the value directly to a freight expense account, or revalue again as above taking into account that you may already have consumed some of the stock.
What do I do if there is value left in the 'freight clearing' account?
Use an accounting journal to allocate to your usual freight expense account, or revalue stock again.
What dates do I use for freight invoices?
Ensure all dates, where possible, are within the same month when not using an in-transit warehouse so the accounting process does not overstate freight clearing expenses in your monthly profit and loss report.
Do I have to use an in-transit warehouse?
No. Using an in-transit warehouse is useful for separating stock being consumed from stock which is yet to be revalued.
As long as you are aware that consuming stock before it has been revalued will cause your in-stock goods to be over-valued, or you have other robust processes in place to prevent the stock from being consumed, you do not have to use an in-transit warehouse.
Last edit: 08/09/2026