Is freight part of cost of goods sold? Freight-in, duty and fees for a Shopify store
Inbound freight, yes. The IRS says freight-in on merchandise you buy for sale is part of cost of goods sold, and IAS 2 puts transport, handling, import duties and taxes you can't recover into the cost of inventory. Shipping orders to customers, no: IAS 2 excludes selling costs. Shopify's Cost per item guidance asks for the price paid without shipping or other costs, so if you follow it, Shopify's margins leave freight and duty out.
What are freight-in costs?
Freight-in (inbound freight, transportation-in) is what you pay to bring goods you bought to your warehouse or store: the carrier, insurance on the way, and handling. It belongs in the cost of the inventory, so it reaches cost of goods sold only as the units sell (IRS Publication 334; IAS 2 counts “other costs to bring inventory to its present location and condition”).
Freight-out, also called freight on sales, is what you pay to ship orders to customers. It is a selling cost, not inventory cost (IAS 2.16(d)), so it stays out of Cost per item and out of cost of goods sold.
What goes into inventory cost
| Cost | In inventory cost? | Source |
|---|---|---|
| Supplier price, after trade discounts | Yes | IRS: use the prices you pay. IAS 2.11: trade discounts deducted |
| Purchase returns and allowances | Deducted | IRS Publication 334 |
| Inbound freight (freight-in, express-in, cartage-in) | Yes | IRS Publication 334; IAS 2.11 transport and handling |
| Import duties | Yes | IAS 2.11 |
| Taxes you can't recover | Yes | IAS 2.11 |
| Taxes you recover, such as VAT you reclaim | No | IAS 2.11 |
| Customs broker and similar fees to bring goods in | Usually, as costs directly tied to buying the goods | IAS 2.11; ask your accountant |
| Shipping orders to customers | No, a selling cost | IAS 2.16(d) |
| Storage after the goods arrive | No, unless storage is part of production | IAS 2 |
A worked example: landed cost per unit
| Amount | |
|---|---|
| 200 units at $4.00 | $800.00 |
| Inbound freight | $120.00 |
| Import duty (5% of $800) | $40.00 |
| Customs broker fee | $40.00 |
| Landed cost | $1,000.00 |
| Per unit | $5.00 |
Sold at $12.00, the margin is 66.7% at the $4.00 supplier price and 58.3% at the $5.00 landed cost. The 8.3-point gap is freight, duty and fees.
What Shopify does with freight and duty
- Cost per item: Shopify's guidance is to enter the price paid without taxes, shipping or other costs (Shopify Help).
- Cost adjustments: on a purchase order's linked transfer you can add Shipping amount and Customs duties to a shipment, and the Cost summary adds them up (Shopify Help).
- No allocation: for automatic landed cost allocation, such as duty, freight or tax, Shopify points to a third-party costing app (Shopify Help).
So you choose: keep Cost per item at the supplier price (Shopify's margins then leave freight out), or put landed cost in it so Shopify's margins match your books. Decide with your accountant and use one rule everywhere.
How True COGS adds freight and duty
- On paid plans, each delivery can carry freight, duty, brokerage and port fees, in any currency.
- Freight splits by units, weight or value; duty, brokerage and port fees by value.
- The landed cost per unit goes into your weighted average or FIFO cost, and from there to Cost per item.
- A bill that arrives after the goods goes on the stock still held.
Related guides
Questions merchants ask
Is freight-in part of cost of goods sold?
Yes. IRS Publication 334 says freight-in, express-in and cartage-in on merchandise you buy for sale are part of cost of goods sold.
Is shipping to customers part of COGS?
Not under IAS 2: selling costs are excluded from inventory cost. Ask your accountant where it goes on your tax return.
Are customs duties part of inventory cost?
Yes. IAS 2 includes import duties in the cost of purchase, along with taxes you can't recover.
Should Shopify Cost per item include shipping?
Shopify's guidance is to leave shipping out. If you do, Shopify's margins leave inbound freight out. Many stores put landed cost in the field so Shopify's margins match their books. Agree the rule with your accountant.
How do I add customs and broker fees to inventory cost in Shopify?
Split them across the delivery by value, add each unit's share to its price, and update Cost per item. A landed cost app can do the split and the update.
What are freight-in costs?
Freight-in is the cost of bringing goods you bought to your warehouse or store: the carrier, insurance on the way and handling. It is part of inventory cost and reaches cost of goods sold as the units sell.
What is freight on sales?
Freight on sales, or freight-out, is what you pay to ship orders to customers. It is a selling cost, so it is not part of inventory cost or Cost per item.
Try True COGS free. True COGS is an inventory costing app for Shopify by Nexus Logic Systems. It records the price you paid on every delivery (a received purchase order or a transfer), with its share of freight and duty on paid plans, keeps every price with its date, and writes your moving weighted average cost, or FIFO cost on a paid plan, to Shopify's Cost per item. It is free for up to 25 variants with a cost on record; paid plans start at $29 a month or $290 a year.
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