Accounting of import of goods

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 October 2018 Please suggest me accounting entry of below entry of import? Whether it should be recorded all amount of invoice in purchase account (cost of product) or record other cost seprately?

Goods cost 349551.44
Add : Bag fees 6700
Add : Insurance 577.5
Add : Freight 14300
Total Invoice cost 371128.94

Terms of delivery is on CIF basis.

Querist : Anonymous

Querist : Anonymous (Querist)

22 October 2018 Please suggest me accounting entry of below entry of import?

Whether it should be recorded all amount of invoice in purchase account (cost of product) or record other cost seprately?

Goods cost 349551.44
Add : Bag fees 6700
Add : Insurance 577.5
Add : Freight 14300
Total Invoice cost 371128.94

Terms of delivery is on CIF basis.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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14 July 2024 When importing goods on CIF (Cost, Insurance, and Freight) basis, it's important to correctly allocate the various costs associated with the import transaction. Here’s how you should account for each component of the import cost:

### Breakdown of Import Costs:

1. **Goods Cost:** ₹349,551.44
- This is the cost of the goods purchased.

2. **Additional Costs:**
- **Bag Fees:** ₹6,700
- **Insurance:** ₹577.5
- **Freight:** ₹14,300

3. **Total Invoice Cost:** ₹371,128.94
- This is the sum of the goods cost and additional costs.

### Accounting Entries:

#### 1. Recording the Purchase of Goods:

- Debit: Inventory (or Purchases) Account ₹349,551.44
- This represents the cost of the goods purchased.

#### 2. Recording Additional Costs:

- Debit: Bag Fees Account ₹6,700
- This account is used to record bag fees incurred as part of the import.

- Debit: Insurance Expense Account ₹577.5
- This account records the insurance cost associated with the import.

- Debit: Freight Expense Account ₹14,300
- This account captures the freight cost related to the import.

#### 3. Recording the Liability (if not paid immediately):

- Credit: Accounts Payable (or Supplier's Account) ₹371,128.94
- This represents the total invoice cost payable to the supplier.

### Total Accounting Entry:

- Debit: Inventory (or Purchases) Account ₹349,551.44
- Debit: Bag Fees Account ₹6,700
- Debit: Insurance Expense Account ₹577.5
- Debit: Freight Expense Account ₹14,300
- Credit: Accounts Payable (or Supplier's Account) ₹371,128.94

### Explanation:

- **Inventory (or Purchases) Account:** This account reflects the cost of the goods purchased. The CIF value of ₹349,551.44 is recorded here.

- **Bag Fees Account, Insurance Expense Account, Freight Expense Account:** These accounts are used to separately record the additional costs incurred as part of the import transaction.

- **Accounts Payable (or Supplier's Account):** This liability account represents the total amount payable to the supplier, which includes the goods cost and all additional costs (bag fees, insurance, freight).

### Conclusion:

By recording the import transaction with separate entries for the goods cost and additional costs (bag fees, insurance, freight), you ensure that the financial statements accurately reflect the total cost of importing the goods. This approach adheres to the principle of transparency and enables proper cost allocation in accordance with CIF terms of delivery.

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