How will Freight Out be classified on an Income Statement?

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BlackTom AI · Accepted Answer

Question: How will Freight Out be classified on an Income Statement?

Option a. Net Profit
- This is incorrect because net profit (or net income) is the bottom line after all revenues and expenses have been accounted for. Freight Out is an expense, not the final profit figure.

Option b. Cost of Goods Sold
- COGS represents the direct costs of producing or purchasing the goods that were sold during the period. Freight Out is not directly tied to producing the goods or acquiring them for sale; it relates to distributing or selling them, so it does not belong in COGS.

Option c. Other Expenses
- Freight Out is typically recorded as a selling or distribution expense, which falls under operating expenses. In many classifications, these costs are grouped with 'Other Expenses' or 'Selling, General, and Administrative' categories depending on the chart of accounts. This option aligns with the idea that Freight Out is an operating expense related to distribution.

Option d. Revenue
- Revenue represents the income earned from selling goods or services. Freight Out is a cost, not income, so classifying it as revenue would be incorrect.

Additional context: The classification of Freight Out can vary by company and accounting policy. Some organizations may categorize it specifically under Selling Expenses or Distribution Costs. However, it is never appropriate to classify Freight Out as COGS or revenue, and it is not the net profit figure. In standard practice, labeling Freight Out as 'Other Expenses' reflects its nature as an operating or selling expense that is not directly tied to the cost of goods sold.

How will Freight Out be classified on an Income Statement?

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How will Freight Out be classified on an Income Statement?

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