Landed cost lives on your balance sheet (inventory); COGS lives on your income statement (when units sell). Confusing the two — or expensing duty and freight the moment the bill arrives — is the most common bookkeeping error in import businesses, and it makes gross margin unreadable. Here's the classification table that settles it.
Balance sheet
Landed cost
capitalized into inventory
Income stmt
COGS
recognized when sold
Capitalize
Freight-in
GAAP + IRS
Expense
Freight-out
selling cost, not COGS
The Classification Table
For every import-related cost: does it belong in landed cost, and does it reach COGS?
Cost
Landed cost?
COGS treatment
Notes
Supplier invoice price
Yes
Yes — when sold
The base of both
International freight (freight-in)
Yes
Yes — capitalize
GAAP & IRS: part of inventory cost
Customs duty & tariffs (§301, §232, forced-labor)
Yes
Yes — capitalize
Duty is an inventoriable cost
Cargo insurance
Yes
Yes — capitalize
Customs broker & entry fees
Yes
Yes — capitalize
MPF, HMF, brokerage
Inbound local delivery (port→warehouse)
Yes
Yes — capitalize
Still 'getting it ready for sale'
Import VAT (reclaimable)
No*
No
A receivable, not a cost — if you can reclaim it
Freight-out (to customers)
No
No — selling expense
Operating expense, not inventory
Warehousing after receipt
No
No — period cost
With narrow GAAP exceptions
Marketing, ads, platform fees
No
No — OpEx
Never inventoriable
*Reclaimable import VAT is a receivable, not a cost. General guidance under US GAAP / IRS §471 — confirm specifics with your accountant, especially under IFRS or cash-basis taxes.
Worked Example: How Landed Cost Becomes COGS
Buy 500 units — total landed cost
$15,372
Per-unit landed cost (into inventory)
$30.74
Q3: sell 300 units at $49 each
Revenue $14,700
Q3 COGS = 300 × $30.74
$9,222
Q3 gross margin
37.3%
Still in inventory: 200 × $30.74
$6,148 (balance sheet)
Expensing the whole $5,372 of freight+duty in Q3 instead would have shown a fake 22% margin quarter followed by a fake 55% quarter — same business, unreadable numbers.
Tariff changes silently corrupt your COGS
When a Section 301 list is revised or the forced-labor tariff changes, every new shipment carries a different landed cost — but most sellers keep using last quarter's per-unit number. Result: COGS is wrong in the books AND prices are wrong in the store. If you import on tariff-exposed lanes, recalculate per-unit landed cost on every shipment, not once a year.
Get the Per-Unit Number Your Books Need
Calculate the current landed cost for your product and lane — the figure that goes into inventory and eventually into COGS.
Profit Intelligence
Instant Landed Cost
Free
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