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productslandedcostssoldv13
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I understand that I can receive a shipment of 100 products at $50 a piece, and if I pay $500 shipping, an extra five dollars will be added so that my landed cost will be $55 a piece.

Since I often don't get the Bills until weeks after I receive my shipments, what happens if I sell half of my Inventory?

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Ray Carnes (ray)
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If you sell the products before you process the Landed Cost adjustment, then the amount that SHOULD have been booked to inventory (which not can't because the inventory is sold) will be booked to COGS instead.

Landed Cost and corresponding Journal Entry for a regular adjustment when the $500 is adjusted PRIOR to any sales:





Landed Cost and corresponding Journal Entry for a regular adjustment when the $500 is adjusted AFTER half the items are sold:



You can see the first two lines are the same as the prior example - book the entire additional expense to Inventory.

The next two lines take HALF of this amount OUT of Inventory, because half of the products have been sold [quantity of 50], so it is reducing the impact of the first two lines by 50% in this case.

The last two lines reclass the amount to Cost of Goods, so you end up with the correct Inventory debit and the correct COGS credit at the end.


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Jonathan Wilson

Great explanation Ray - thanks

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Tatsiana Kuzmina
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Thank you for bringing this to attention, Rey. But Here's a breakdown of the complexities with customer returns under the conditions where Landed Costs (LC) are involved may be you have any ideas how to handle with this: 

  • Product Sold:
    • Products are initially sold without including the Landed Costs in their pricing.
  • Landed Costs Applied:
    • After the sale, Landed Costs are applied to the products.
    • New journal entries are created to adjust the Cost of Goods Sold (COGS) to reflect these additional costs.
  • Customer Return:
    • The customer returns the product.
    • The returned value does not include the previously applied Landed Costs, only reflecting the value at the time of the out-transfer.
  • Accounting Discrepancies:
    • No additional reversal journal entries are made post-return to adjust the COGS for the part of the Landed Cost value.
    • This leads to discrepancies in the financial records, as the returned items are valued only at their out-transfer cost, not accounting for the Landed Costs.
  • Impact on AVCO:
    • This situation is particularly problematic under the Average Cost Method (AVCO), where:
      • The returned inventory is valued less than it should be after Landed Costs are factored in.
      • The undervaluation impacts the overall stock valuation negatively

        Thanks in advance, Rey
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