Dictionary / Freight Absorption
What does Freight Absorption mean in accounting?
Quick definition
Inventory & costingThe practice of a seller of not charging the customer with freight out. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
You pay the carrier and leave freight off the invoice
You run a custom door shop. On September 16 you ship two oak units to an inn and pay a cartage company $215 to haul them. You invoice the inn $4,180 for the doors with no freight line. In QuickBooks Online or Xero, enter that cartage company's bill dated September 16 as freight-out or shipping expense; do not add $215 to the customer invoice or to inventory. If you put that haul on accounts receivable, you invent a charge they never agreed to.
A freight line on the invoice is not this
You run a stone yard. On November 3 you invoice a kitchen shop $2,190 for a soapstone slab and add a $128 freight line because they agreed to pay the haul. You prepaid a freight carrier $128 the same day. Enter the invoice with both lines, and enter that carrier's bill as freight-out. You billed the outbound freight, so you did not absorb it; the $128 is a charge to the customer, not a selling cost you ate.
Why it matters
Freight absorption is the seller's choice to pay outbound shipping and leave that charge off the customer invoice. You will not post this most months unless you ship goods and sometimes eat the haul to win a job or match a delivered quote; it shows up when you pay a carrier and the sales invoice has no freight line. Expense that outbound haul as freight-out or shipping. Add it to the customer's bill and you invent a receivable they never agreed to; code it as freight-in and you treat a selling cost like inventory, while freight itself is only the carrier's charge.
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What is Freight Absorption in bookkeeping?
The practice of a seller of not charging the customer with freight out.
When should I use Freight Absorption?
Use Freight Absorption when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Freight Absorption?
Freight Absorption is used for freight absorption entries, while F.O.B covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.