Freight Out in Accounting for Trucking Companies

Freight Out in accounting refers to the cost a seller pays to ship goods to a customer. It’s not just a shipping fee; it affects how your business tracks expenses, reports income, and stays compliant with accounting standards.

What Is Freight Out?

In accounting terms, freight out refers to the outbound shipping cost that a business incurs to deliver goods to its customers.

Rather than adding value to inventory, it’s treated as a selling expense, a necessary cost tied to fulfilling a sale, not

producing the product.

Think of it this way: if you're paying to send goods to a customer, it's freight out.

Freight out = your cost to ship products outbound to the buyer.

It does not increase the value of the product or inventory; it’s simply a cost of getting the product to the customer.

Real-World Trucking Example:

Let’s say a small trucking company delivers parts to a retail customer. The trucking business pays $350 to transport the goods.

That $350 is freight out; it’s logged as a selling expense because the business is covering the shipping to fulfill a sale.

Freight Out vs. Freight In: Key Differences

Freight out and freight in sound similar, but they serve opposite purposes in accounting. Here’s how to tell them apart:

• Freight Out = You (the seller) pay to ship products to the customer.

• Freight In = You (the buyer) pay to receive products from a supplier.

Freight In vs Freight Out: At-a-Glance

Feature	Freight In	Freight Out
Who Pays?	The buyer	The seller
When It Happens	During inventory purchase	During delivery to the customer
Accounting Category	Cost of Goods Sold (COGS) or Inventory	Operating Expense (Selling Expense)
Where It Appears	On the balance sheet (as inventory) or COGS	On the income statement (as an expense)
Purpose	To acquire goods	To fulfill a customer order

How Do You Record Freight Out on Your Income Statement?

Recording freight out properly in your income statement helps you stay compliant, budget more accurately, and clearly reflect shipping-related costs. Here are three steps to do it right:

Record Freight Out When the Cost Is Incurred

Freight out should be recorded once the shipping expense is confirmed. In reality, invoices from freight carriers often arrive days or weeks after the shipment, so many businesses use the invoice date as the recording point, even if the service occurred earlier.

Classify Freight Out as an Operating Expense: Not COGS

While some companies list freight out as part of Cost of Goods Sold (COGS), this is a common misstep.

Under GAAP, freight out is a selling expense, part of operating costs, because it supports sales but does not contribute to making or acquiring inventory.

You should record it in your income statement like this:

Operating Expenses

  - Advertising: -$3,000

  - Freight Out: -$8,500

  - Admin Expenses: -$12,000

Note: Only freight in (what you pay to receive goods from suppliers) qualifies for COGS classification.

Pass the Freight Cost to the Customer (Optional)

If your business chooses to bill customers for shipping, you can treat it as either:

• A reimbursed expense (offsetting the freight out line), or

• Additional revenue (if marked up as a service fee)

  
  

Here’s how it might look:

Operating Expenses

  - Freight Out: -$8,500

Other Income

  - Freight Reimbursement: +$8,500

 If freight recovery is part of your pricing strategy, record it as 'Other Income' to maintain clean reporting.

Example: Freight Out in Action

Let’s say your dispatch team ships a load of goods for a client, paying $1,200 in freight costs. You invoice the client separately for that shipping cost. On your income statement:

Operating Expenses

  - Freight Out: -$1,200

Other Income

  - Freight Recovery (Client): +$1,200

This keeps your accounting clean while clearly showing the flow of both expenses and recoveries.

Is Freight Out an Expense or COGS?

Freight Out is an operating expense, not a Cost of Goods Sold (COGS).

Even though it’s tied to delivering a product, it doesn’t contribute to producing or acquiring inventory. Instead, it’s the cost of fulfilling a sale, which falls under selling expenses on your income statement.

Misclassifying freight out as COGS can distort your gross profit margin and lead to inaccurate tax reporting.

According to GAAP (Generally Accepted Accounting Principles):

• Freight in → part of inventory or COGS

• Freight out → classified under selling or delivery expenses

  
  

Tip: Always check your Chart of Accounts to ensure freight out is categorized as a selling or delivery expense, not inventory or COGS.

Freight Out Journal Entry: Accounting Format

When a business pays for shipping goods to a customer, that cost needs to be recorded accurately in the general ledger. This is done using a journal entry that reflects the transaction at the chart of accounts level.

Standard Journal Entry Format

When the freight expense is incurred, here’s how you would typically record it:

• Debit → Freight Out Expense (or Delivery Expense)

• Credit → Cash (if paid immediately) or Accounts Payable (if billed)

  
  

This format ensures your expense is captured while reducing cash or increasing liability.

Example Entry in Accounting Software

Let’s say your company ships a load using a third-party carrier and receives a bill for $650. In QuickBooks or any general ledger system, the entry might look like:

Account	Debit	Credit
Freight Out Expense	$650
Accounts Payable		$650

You’ve now captured the shipping expense and logged the amount you owe the vendor.

Trucking-Specific Example

Your dispatch team arranges a night-time load delivery and pays a private carrier. You’re invoiced $1,000. Here’s the journal entry:

Account	Debit	Credit
Freight Out Expense	$1,000
Cash		$1,000

This ensures your dispatch cost is tracked separately from driver pay, load cost, or equipment use,  keeping your books clean and organized.

Tax & Reporting Implications

Freight out may seem like a routine shipping cost, but how you classify and report it can have real tax and financial implications.

Not Deductible as COGS

Freight out does not qualify as Cost of Goods Sold (COGS) for tax purposes. Instead, it’s considered a selling or delivery expense, a type of operating expense that appears below the gross profit line on your income statement.

If you report freight out under COGS, you risk misstating your gross profit and triggering IRS scrutiny.

IRS Tip: For businesses required to file Form 1125-A (Cost of Goods Sold), only freight in should be included. Freight out belongs in operating expenses on Form 1125-E or Schedule C, depending on your entity type.

Why Proper Classification Matters

• Accurate Profit Margins – Misclassifying freight out inflates COGS and distorts gross profit

• Clean P&L Reports – Keeping freight expenses separate allows better tracking of operational efficiency

• Audit Readiness – Properly labeled freight charges reduce red flags in IRS or CPA reviews

  
  

Track freight out in its own line item on your P&L. This makes it easier to analyze shipping costs, optimize pricing, and generate cleaner financial reports.

Make Freight Out Work for Your Books

Freight out it’s an operating expense that impacts how you report profit, manage billing, and stay tax-compliant.

By classifying it correctly, recording it on time, and optionally recovering the cost from customers, you maintain accurate and audit-ready financial records.

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FAQs

Is freight out taxable?

 Not usually, but if you bill customers for shipping, it may be taxable depending on your state.

What account should I use for freight out?

Use a selling or delivery expense account, never COGS or inventory.

Can I charge the customer for freight out?

Yes, and you can record it as reimbursement income or added sales revenue.

Is freight out considered part of COGS?

It’s an operating expense, not part of the cost to produce or buy goods.

Where does freight out appear in financial reports?

It shows under operating expenses on the income statement, below gross profit.

Should I separate freight out on my P&L?

Tracking it as a distinct line item improves reporting and cost analysis.

How do I record prepaid freight from customers?

Treat it as deferred revenue until the delivery is fulfilled, then recognize it.