What is the significance of FOB Shipping Point and FOB Destination?
Accountants report a merchandiser’s and a manufacturer’s revenues when a sale is made. The term, FOB Shipping Point, indicates that the sale occurred at the shipping point—at the seller’s shipping dock. FOB Destination indicates that the sale will occur when it arrives at the destination—at the buyer’s receiving dock.
Accountants also assume that the cost of transporting the goods corresponds to these terms. If the sale occurred at the shipping point (seller’s shipping dock), then the buyer should take responsibility for the cost of transporting the goods. (The buyer will record this cost as Freight-In or Transportation-In.) If the sale doesn’t occur until the goods reach the destination (terms are FOB Destination), then the seller should be responsible for transporting the goods until they reach the buyer’s unloading dock. (The seller will record the transportation cost as Freight-Out, Transportation-Out, or Delivery Expense.)
Learn more about Inventory & Cost of Goods Sold.
About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.
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I have a question regarding this, given this situation
Mayberry Company took a physical inventory on December 31 and determined that goods costing $200,000 were on hand. Not included in the physical count were $15,000 of goods purchased from Taylor Corporation, f.o.b. shipping point, and $22,000 of goods sold to Mount Pilot Company for $30,000, f.o.b. destination. Both the Taylor purchase and the Mount Pilot sale were in transit at year-end. What amount should Mayberry report as its December 31 inventory?
I would assume you would subtract the 15,000 from the 200,000 first because that was f.o.b. shipping point. But for the second part, what amount do you add back on. I thought it would be the 30,000 giving you 215,000 but that is incorrect
$200,000
+ 15,000
+ 22,000
= 237,000
thanks for the help, i figured it out but still find it strange since the 15,000 is added to the cost of goods sold when Taylor bought it because originally the answer i got was 207,000 from 200,000 - 15,000 + 22,000
is it not…193,000? ($200,000 add 15,000 since fob shipping point then deduct 22,000 since fob destination)
i need your assistance,i a buyer who requested for the price of lead which i am to sale to her,she asked for the price fob nigeria which my country,does it mean i am goingto pay for the freight.
Nigeria is your country, so I am assuming the terms are FOB Destination, which would mean that ownership of the goods doesn’t pass to you until you get the goods. This would mean that the seller would have to pay for the shipping.
Unless, if you are the one selling the lead then it is FOB shipping point she is referring to, if she is the buyer, then she would be paying for the shipping. Sorry, it was hard to understand the question.
I have a question. Does FOB have to state a specific place or destination?.
The inventory is $200,000 the other transactions in transit are recorded in debtors and creditors or accounts receivable or payable.
If the price is quoted as FOB price and shipping point or destination is not specified then how it be treated? pl clarify.
If the price is quoted as FOB price and shipping point or destination is not specified then how it will be treated? pl clarify.
We sent out product with FOB ship point. We shipped UPS red because the customer asked us to ship “best way” and they would reimburse us for the shipping charges. UPS could not find the location of the jobsite based on the information that the buyer gave us. We attempted several times to get the correct address from the buyer, but they gave us the same address and eventually UPS sent it back to the sender, which was us. It took us 2 weeks to get the product out there because we eventually had to ship it to their warehouse. Now, they will not pay for the shipping charges because it was not shipped in the time allotment of UPS red. Our argument is that because it was FOB ship point, we had no responsibility to get the product to their jobsite, but we did it out of courtesy. Who is wrong? Who is right?
It seems that as long as the contract specified FOB ship point, then you would be correct and your customer would be liable for the shipping costs. Your contract should have an indemnity clause releasing you from fault in the event of a third party shipping carrier error anyway. The bottom line is that you are right and they are wrong.
I have created a product and now want to sale it. I have a number of people interested from overseas. Until this point I have not shipped overseas. When they ask for FOB prices what should I tell them? Ex: I am in California USA and they are in Belgium.
While keeping the cost down what is the safest way to ship my product?
Dear Ron, let me highlight to you the FOB first.
The FOB means Free On Board (usually go on board of vessel for ocean transit according Incoterms 2000), no matter which point of the port is going to, you must pay the freight until the goods is on board (the named point, for example, FOB California to Belgium - the export is port LA and you have to paid whatever charges for the trucking from your place to port LA and custom’s charges such as export declaration, documentation and load on the vessel if any etc.). After goods passed to the named port (in this case is port LA, you have no reason to bear the obligation unless your contract indicated, otherwise, buyer will take the responsibity thereafter.
i think it is $200,000 +$22000 +15,000=$2,37,000
i have a question!!!!
june 4-mariano company sold merchandise on account for 20000. Term:FOB Destination
june 6-mariano company paid the feight for june 4 transaction
what are the journal entries?????
dr. Cost of goods sold
cr. Merchandise inventory
Dr accounts receivable- (Co. name) 20000
Cr. Revenue account (Sales) 20000
FOB destination should have freight charges where it would be
dr. Freight, or included in cost of goods sold
cr. possibly a payable or cash or some sort.
june 6
dr. cash
cr. A/R
Unless there are other terms in the contract such as 2/10, net 30 where the discount would have to be accounted for.
why u pas this extra entry of
june 6
cash
A/R
Is FOB Point of Origin can be selected for International shipping? Can FOB and DDU quote for transportation?
Who os responsible for lost or damaged goods if the contract is FOB shipping but the seller uses a different shipping company than the buyer specified.The seller sent the invoice with the shipping information on it to include the new shipping company and the buyer pays the invoice to recieve the discount.
Question:
Goods in transit which are shipped f.o.b. destination should be included in
a) Seller’s inventory
b) Buyer’s inventory
c) Shipping companies inventory
Roger it is 222,000, doesnt matter now I am sure its been a while. Goods FOB shipping point are in the buyers inventory, FOB destination are in the sellers inventory until the goods are recieved by the buyer.
Karsten, your answer is A. FOB destination means the title does not transfer until the goods reach the destination. Think about this: You just committed to buying a car from an out of state party. The car comes with a title which you need to have transfered into your name. Even if you already paid for the car, ownership is not in your name until transfer of the title. This is an example of a sale of goods which is FOB destination, meaning the goods are paid for but the title of the goods does not change hands until the goods reach the buyer dock.
Oh, and the shipping company will never own inventory, even if they store the goods for long period of times. They might store the goods for a year, but they do not own it. Much like selling something on consignment at a Pawn Shop.
I have a new question ….
If a company contracts to purchase items that will be manufactured at a vendors facility, then installed by a vendor representative, FOB Destination, with 50% payment due upon mobilization, and 50% due upon completion (per purchase order), and the items are not received by year end by the purchaser, but are substantially completed as to the manufacturing process, is the purchaser required to accrue any of the remaining balance of the purchase price into it’s books at the end of the period in question? Would this answer be the same if it were a specially manufactured item by the vendor; i.e., requiring a non standard manufacturing process, and / or modifications to their normal production facilities or work processes?