Almanac · 01 · Money · essay
GL allocation
Rob Balawender · Editor
Accounting drops freight in a bucket. Sales gives it away to close. Accruals and actuals rarely meet.
Most companies’ accounting departments — AP in particular — drop freight into an allocation bucket. Ops thinks they are “under budget.” Sales treats freight as a liability they can give away to close the deal. Purchasing thinks inbound is the vendor’s problem. None of those people are looking at the same number.
Allocation is the assignment of a shipment’s real cost to the financial home that caused it: a plant, a channel, a customer, a SKU if you can stand it. Until that happens, every “we saved two hundred thousand” is an argument, not a close.
What goes wrong without it: a high-service lane subsidizes a cheap one, so the expensive customer looks profitable. Inbound collect freight sits in a corporate bucket while purchasing is measured on unit cost. Accruals and actuals rarely meet, so month-end is a guesstimate.
What good looks like: every settled invoice can be pointed at a cost center on purpose, not by habit. Freight can be shown as a percent of purchase, of sales, of a customer. When someone claims a saving, finance can say where it landed.
Picture this
One bucket vs a real P&L
If you only do one thing after reading this: ask for last month’s freight by cost center, and ask who picked those cost centers. The silence is the brief.
See also: Accruals · Financial data validation · Accounting
When you want that number on your own books: the diagnostic.
Working on this? Elite Logistics, our alliance partner →