why would a retail company make these entries?

[acct_monster]

I work at a retail company where the accounts payable supervisor makes journal entries to record the following:

To record merchandise shipping fees from the supplier to our warehouse:

Dr Inventory
Cr accounts payable(UPS freight)


To record shipping fees from the warehouse to the retail stores:

Dr cost of goods sold
Cr accounts payable (UPS freight)


Shouldnt the shipping from the warehouse to the store also debit inventory? I thought COGS is only debited when a sale occurs.

 

[Tim8705]

A guess as I do not work at the company, but it could have to do with how your company views inventory.

Your company may view logistics and warehousing as one segment of the business, and merchandising and retail as another segment. In that case, the internal books would want to show a distinction between the movements, even if it isn't technically a 'sale.' I would say if you looked at the company's consolidated books, it would not appear as described above.

My guess is the second transaction is an intercompany entry. But again, hard to tell without knowing a lot of background

 

[Counterofbeans]

Shouldnt the shipping from the warehouse to the store also debit inventory?

Yes. Interwarehouse freight is clearly an inventoriable cost.

The only way something like this would make sense is if someone came in at month-end close and posted a J/E that corrected the inventory/COS balances. Expensing I/W freight like that wouldn't be accurate.

I thought COGS is only debited when a sale occurs.

In general, yes.

You should make inquiries, as those J/Es, at this time, make no sense to me either.