What is the entry of it?

Question

Bought merchandise on account 1000 and paid freight of 500

Answer 1

John F. is correct. According to FASB ASC 330-10-30-1 "The primary basis of accounting for inventories is cost, which has been defined generally as the price paid or consideration given to acquire an asset. As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost, and its determination involves many considerations.

The initial journal entry would then be:

Dr. Inventory $1,500

Cr. Cash $500

Cr. Accounts Payable $1,000

Answer 2

I respectfully disagree. According to Retail Inventory per Financial Reporting, CPA Review edition the freight is added to the cost value of the inventory and not expensed. This increase in the cost value is included in the ‘Total Available for Sale’ section of the ‘Cost of Goods Sold’ statement.

Thus, the second entry would read:

Dr. Inventory $500

Cr. Cash $500

As a supporting observation, this cost would be directly added to the specific inventory line-items received and would not be reflected as a period cost expensed against operation net income.