GL Accounting for Landing Factors

A choice needs to be made as to whether to record most of the activity in the Liabilities section of the Balance Sheet OR in the Cost of Goods Sold section of the Income Statement. A further choice needs to be made as to whether to record the Landing Factor activity in a single account (resulting in a 'net' value representing the over or under-absorption of the landing charges) or to record the Landing Factor activity in multiple accounts (thereby retaining the 'gross' activity involved in absorbing landing charges into Inventory and subsequently paying for the actual charges).

The following example represents the 'net' approach in the Liability section of the Balance Sheet. It begins when Product is received and landing charges are added to the cost of the Product:

The net result of the above is a Debit balance of $5.00 in the Landing Costs Absorbed account. This should be written off monthly/quarterly to an Expense account:

Alternate Method of Recording Landing Costs:

You might wish to keep the landing costs (absorbed, actual and variance) in separate accounts to provide a history of the gross amounts. If so, instead of using a single GL account for Landing Costs Absorbed, you set up two accounts (if you choose to have these in the COS section of the Income Statement) or three accounts (if you wish to have them in the Liabilities section of the Balance Sheet) and the entries are set up as follows:

a) If you want to maintain the accounts in the Liabilities section of the Balance Sheet:

b) If you want to leave the accounts in the Cost of Goods Sold section of the Income Statement:

No further entries are required as the net impact on the Cost of Goods Sold is a debit of $5.00, representing the under-absorption of the landing charge.