Accounting Entry

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Prakash (Querist)

01 February 2021 We are charging Shipping charges on Export Bills to party , when payment received, total amount credited to party account , but shipping charges we levied on invoice now showing in income account. but in reality this is not income and its adding in profit , so please can any one suggest how to adjust the shipping bill amount so it could not show in income account. it should be nulify shold not be added in profit in loss....

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

06 July 2024 To handle shipping charges on export bills appropriately so that they do not impact your profit and loss as income, you can follow these accounting practices:

1. **Separate Ledger Account for Shipping Charges:**
Create a separate ledger account specifically for shipping charges. This will allow you to track these expenses separately from your income accounts.

- **Debit:** Shipping Charges Account (Increase the balance for shipping charges)
- **Credit:** Accounts Receivable (Decrease the amount owed by the customer)

2. **Adjusting Invoice Entries:**
When you invoice the customer, ensure that the shipping charges are clearly segregated from the main invoice amount. For example, if your invoice total is $10,000 with $500 shipping charges:

- Debit Accounts Receivable: $10,500
- Credit Sales Income: $10,000
- Credit Shipping Charges Account: $500

This way, the shipping charges are not recorded as income but rather as a separate expense.

3. **Handling Payments Received:**
When the customer pays their invoice:

- Debit Bank Account: Total amount received
- Credit Accounts Receivable: Total invoice amount
- Credit Shipping Charges Account: Shipping charges amount

By doing this, the shipping charges are accounted for separately and do not impact your net income calculation.

4. **Reporting and Disclosure:**
Clearly disclose shipping charges separately in your financial statements. This ensures transparency and accuracy in your financial reporting.

5. **Consultation with Accountant:**
It's advisable to consult with your accountant or financial advisor to ensure compliance with accounting standards and to tailor these practices to your specific business needs and local regulations.

By implementing these steps, you can accurately reflect the cost of shipping charges without affecting your reported income, thus maintaining the integrity of your profit and loss statement.

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