Question

A company using the perpetual inventory method paid $200 cash to have goods delivered from one of its suppliers. The payment of $200 for transportation-in is considered:__________.

Answer 1

An asset exchange transaction which increases the cost of the purchased merchandise.

The firm gives the transportation company money (which is an asset) and since the transportation costs are included in the cost of the merchandise, the firm is paying a fraction of the cost of the asset.

When you are calculating the purchase cost of goods you must include the price of the goods, transportation costs, and any other associated expense like insurance costs and import fees, etc.

Transportation costs are only included in the COGS when the firm acquires the goods, but when the firm sells the goods, any distribution cost is not included under production costs, instead they are included under the sales costs.