Manufacturers frequently incur freight and tariff costs that are directly attributable to purchased materials.

From an accounting perspective, many controllers and CPAs prefer these costs to be:

• Capitalized into inventory
• Recognized gradually as inventory is consumed or sold

This approach prevents freight costs from appearing as an immediate expense spike when invoices arrive.

Instead, the cost becomes part of the inventory value and flows into COGS naturally as the material moves through production and sales.

Cetec ERP supports this workflow through receipt-based landed cost combined with the Accrued Purchases clearing account.

Example purchase scenario:

Material purchased from vendor: $100

Freight / tariff cost: $50

Total landed inventory value: $150

The goal is for inventory to enter the system at $150, not $100.

Freight and tariff costs become part of the inventory value and are recognized later through COGS as the material is consumed or sold. This avoids a separate freight expense spike when the freight invoice arrives.

Cetec ERP does not automatically distribute freight estimates across PO lines using weight or value calculations.

Because of this, companies often estimate freight externally and store that estimate at the PO line level.

Typical workflow:

• Determine freight allocation outside the system (often via spreadsheet)
• Store the estimate on the PO line, usually via a custom field
• Allow the estimate to carry forward to the receiving screen

This ensures the receiving team has visibility into the expected freight cost when inventory is received.

Applying freight as landed cost at the moment of receipt keeps the accounting aligned with operational reality.

The receiving clerk already knows:

• what material is arriving
• the quantities being received
• the freight estimate determined by purchasing

Applying landed cost at this point ensures inventory enters the system at its true expected cost.

A purchase order is issued to the material vendor for the raw material.

Example:

Material from Best Products: $100

The PO references only the material vendor. Freight is not entered as a PO line item.

Freight estimates remain informational at this stage.

Accounting impact: none.

When the material is received:

• warehouse receives the material
• estimated freight is applied as landed cost
• inventory is received at its full landed value

Example receipt value:

Material: $100

Estimated Freight: $50

Inventory value recorded: $150

Accounting entry at receipt:

Debit – Inventory $150

Credit – Accrued Purchases $150

The credit balance in Accrued Purchases is expected. It represents costs incurred but not yet invoiced.

The material vendor invoice arrives for $100.

The PO receipt is attached using a three-way match.

Cetec ERP defaults the voucher split to $150, reflecting the receipt value.

Best-practice step:

The A/P clerk must adjust the voucher split from $150 to $100 so it matches the vendor invoice.

Correct accounting entry:

Debit – Accrued Purchases $100

Credit – Accounts Payable $100

After this step, the remaining $50 balance in Accrued Purchases represents the freight cost that has not yet been invoiced.

The freight vendor invoice arrives for $50.

No PO receipt is attached.

Cetec ERP defaults the voucher split to Accrued Purchases.

Accounting entry:

Debit – Accrued Purchases $50

Credit – Accounts Payable $50

At this point, the Accrued Purchases account clears completely.

A/P now correctly reflects the obligations to both vendors.

Inventory remains capitalized at $150.

As the material is:

• issued to work orders
• consumed in production
• sold as finished goods

COGS absorbs the cost proportionally.

Because freight and tariff costs were capitalized into inventory, they flow into COGS naturally alongside the material cost. This prevents separate freight expense spikes and avoids manual accounting adjustments.

Accurate Inventory Valuation

Inventory reflects the full landed cost of material rather than only the vendor invoice amount.

Stable Margins

Freight and tariff costs move into COGS gradually as the material is consumed or sold. This aligns cost recognition with revenue rather than creating a one-time freight expense.

Clean Clearing Account Behavior

The Accrued Purchases account temporarily carries balances when receipts occur before invoices. The account clears naturally as vouchers are entered.

Audit-Friendly Accounting

Each step in the process is supported by normal system records such as purchase orders, receipts, and vouchers. No manual journal entries are required.

“Cetec overstated my A/P.”

The voucher default reflects the receipt value rather than the vendor invoice amount. Adjusting the voucher split to match the invoice is expected.

“Accrued Purchases shouldn’t carry balances.”

Accrued Purchases will carry balances when inventory has been received but the related invoices have not yet been entered.

“Freight should be expensed immediately.”

That is an accounting policy decision rather than a system requirement. Many manufacturers capitalize freight so the cost is recognized with the inventory when it is consumed or sold.