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July 12, 2006

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.

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23 Responses to “What is the significance of FOB Shipping Point and FOB Destination?”

  1. Roger on November 1st, 2007 12:22 am

    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

  2. brain on November 3rd, 2007 3:54 pm

    $200,000
    + 15,000
    + 22,000
    = 237,000

  3. Roger on November 6th, 2007 10:08 pm

    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

  4. poisonous jane on April 26th, 2008 1:32 am

    is it not…193,000? ($200,000 add 15,000 since fob shipping point then deduct 22,000 since fob destination)

  5. HILLSON on June 14th, 2008 7:32 am

    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.

  6. Ryan on July 31st, 2008 1:29 pm

    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.

  7. Ryan on July 31st, 2008 1:32 pm

    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.

  8. Ami on October 30th, 2008 11:26 pm

    I have a question. Does FOB have to state a specific place or destination?.

  9. Ray on December 4th, 2008 4:25 pm

    The inventory is $200,000 the other transactions in transit are recorded in debtors and creditors or accounts receivable or payable.

  10. Ansari on December 11th, 2008 6:09 am

    If the price is quoted as FOB price and shipping point or destination is not specified then how it be treated? pl clarify.

  11. Ansari on December 11th, 2008 6:10 am

    If the price is quoted as FOB price and shipping point or destination is not specified then how it will be treated? pl clarify.

  12. Kumar on December 16th, 2008 4:56 pm

    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?

  13. Adam on December 30th, 2008 5:18 pm

    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.

  14. Ron on February 21st, 2009 3:33 pm

    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?

  15. Martin on March 2nd, 2009 1:18 am

    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.

  16. Nitin Dwivedi on April 6th, 2009 8:20 am

    i think it is $200,000 +$22000 +15,000=$2,37,000

  17. ralp on September 12th, 2009 3:42 am

    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

  18. ralp on September 12th, 2009 3:43 am

    what are the journal entries?????

  19. Chad on October 5th, 2009 4:32 pm

    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.

  20. Chad on October 5th, 2009 4:34 pm

    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.

  21. tahir on November 2nd, 2009 9:47 am

    why u pas this extra entry of
    june 6
    cash
    A/R

  22. vava on November 5th, 2009 12:40 pm

    Is FOB Point of Origin can be selected for International shipping? Can FOB and DDU quote for transportation?

  23. paula on November 9th, 2009 4:41 pm

    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.

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