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 transportion cost as Freight-Out, Transportation-Out, or Delivery Expense.)
Learn more about Inventory & Cost of Goods Sold.
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7 Responses to “What is the significance of FOB Shipping Point and FOB Destination?”
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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.