Is Freight Cost Included in Inventory? – Accounting Guidelines for Ecommerce Businesses

Did you know that up to 30% of an ecommerce company’s total landed cost can be attributed to freight and shipping expenses? For online retailers, understanding how freight costs affect inventory accounting isn’t just about compliance—it directly impacts profitability, financial clarity, and decision-making.

Whether you’re new to ecommerce or optimizing a mature operation, this detail matters.

Key Takeaways

• Freight-in costs are typically included in inventory value under GAAP and IFRS.

• Accurate inventory valuation improves profit measurement and compliance.

• Capitalizing freight costs defers expenses and aligns them with revenue recognition.

• Best practice: Use a reliable 3PL like ShipSquared for automated, accurate cost tracking.

Understanding Freight Cost in Inventory Valuation

Freight costs (inbound transportation) occur when products are shipped from suppliers to your warehouse or fulfillment center.

The accounting question: Should you expense these costs immediately or capitalize them as part of your inventory asset?

GAAP and IFRS Rules

Both GAAP and IFRS state that all costs necessary to bring inventory to its current location and condition must be included in inventory valuation. Freight-in costs are therefore capitalized, not expensed at purchase.

Included costs:

• Purchase price of goods

• Inbound freight (supplier → warehouse or 3PL)

• Customs duties and import taxes

• Handling and applicable warehousing fees

Excluded costs:

• Outbound shipping to customers

• Marketing costs

• General admin expenses

Why Including Freight Costs Benefits Ecommerce Businesses

1. More Accurate Profitability

Capitalizing freight-in ensures COGS reflects your true product cost, leading to better gross margin analysis for pricing, forecasting, and scaling.

2. Compliance-Ready Inventory Valuation

Accurate valuation safeguards you during audits and investor due diligence.
Over 40% of ecommerce misstatements come from mishandling freight and related costs.

3. Deferred Expenses Boost Net Income Short-Term

Freight-in is only expensed when the item sells, smoothing income statements and avoiding sudden expense spikes.

4. Better Cost Control

Full landed cost visibility allows you to negotiate supplier rates, remove inefficiencies, and adjust pricing—boosting margin management by an average of 12%.

Step-by-Step: How to Include Freight in Inventory

1. Track Freight-In Costs
   Keep detailed records for all inbound shipments, ideally with itemized invoices.

2. Add Freight to Purchase Cost
   In accounting software, combine purchase price + freight (e.g., $1,000 goods + $200 freight = $1,200 inventory value).

3. Use Capitalized Value in COGS
   When selling, include freight in your COGS calculation for true gross margins.

4. Automate with Technology & 3PL
   Use modern systems and a partner like ShipSquared to automatically capture and assign landed costs.

Best Practices & Tools

• Inventory software with landed cost features (NetSuite, QuickBooks Commerce, TradeGecko).

• Regular internal audits to ensure freight-in is consistently applied.

• Work with a professional 3PL that accurately allocates freight costs to inbound inventory.

Why Choose ShipSquared as Your 3PL Partner

• Automated landed cost tracking for all inbound shipments.

• Real-time inventory reporting for better decisions.

• Audit-ready compliance support to keep books accurate.

Start with ShipSquared today and make freight cost accounting effortless.

FAQ

Is inbound freight always included in inventory?
Yes—under both GAAP and IFRS, inbound freight is capitalized as part of inventory value.

What about shipping to customers?
Outbound freight is expensed as a selling cost, not included in inventory.

How do 3PLs help?
They track freight for each shipment, sync with your inventory system, and ensure landed costs are recorded correctly.

Can accurate freight tracking improve profitability?
Absolutely—knowing true landed costs improves pricing, cost control, and forecasting.