What is the term for shipping costs that increase the total cost of inventory?

The term "freight in" refers to the shipping costs incurred to bring inventory to a business. When goods are purchased, the total cost includes not only the purchase price but also any additional costs necessary to prepare the inventory for sale, such as transport expenses. Freight in is included in the inventory costs on the balance sheet, which reflects the true expense of acquiring the inventory, ensuring that the financial statements accurately represent the cost of goods available for sale.

In contrast, freight out typically pertains to shipping costs incurred when goods are sent to customers, and thus it is treated as an expense on the income statement rather than a component of inventory cost. Distribution costs refer to a broader category of expenses associated with the delivery of goods, but they don’t specifically denote inventory-related shipping costs. Handling fees are charges for managing and processing inventory but do not necessarily encompass all shipping costs or their impact on the inventory's total cost.