Are warehouse, freight, and fulfillment costs part of my Inventory cost or are they Operating Expenses?
The short answer is that it could be either an Inventory cost (categorized to the Inventory Asset account), or it could be an operating expense (categorized to a Warehousing and Logistics expense account, for example, if this type of account is not already in your chart of accounts). Thus pick a method and stick with it. Be consistent.
The longer, more complex answer is that each type of cost follows a general concept:
Depending on how you pay for those costs it may not be practical or possible to be able to break them out if they are bundled together when you pay for them. Thus the general recommendation is that if these costs are bundled, then choose the most material of that bundled cost. For example if most of the cost relates to Freight Out, then categorize the cost to the an operating expense account. Then stick with this methodology and consistently categorize the cost accordingly by creating a vendor or keyword mapping rule.
*Fulfillment
A)
Inventory Cost
- If the fulfillment costs are directly related to the production or acquisition of goods sold. This includes costs incurred in the process of manufacturing, assembling, or acquiring products, as well as costs associated with packaging, shipping, and delivering the products to customers.
B)
Operating Expense
- If the fulfillment costs are not directly tied to the production or acquisition of goods but rather support the general operations of the business. This includes expenses related to warehousing, distribution, order processing, logistics, and fulfillment services that are not directly tied to the production process.