On December 30, the seller should record a sale, an account receivable, and a reduction in its inventory. If a shipment is designated as FOB Shipping Point, the sale will be recorded in the accounting system as what does fob stand for in accounting soon as the shipment leaves the seller’s dock. At the same time, the buyer will record in its accounting system that inventory is on route.

FOB Shipping in History

This can affect the seller’s competitiveness in the market, as buyers may opt for lower-priced alternatives. Since the quoted price typically excludes transportation and insurance costs, the final landed cost for the buyer can often be higher than FOB Destination. This can make the seller’s offer less competitive and potentially impact sales volume. The buyer should record the purchase, the account payable, and the increase in its inventory as of December 30 (the date that the purchase took place). Since the goods on the truck belong to the buyer, the buyer should pay the shipping costs.

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Which of these is most important for your financial advisor to have?

1. On the way to Jeff’s factory, the trucker gets into an accident and the parts are ruined.
2. The buyer takes responsibility for the transport cost and liability during transportation.
3. The choice between FOB Origin and FOB destination depends on the specific needs of both parties.
4. Jeff tries to sue Ann, but he can’t because the title of the goods already passed to him.

At the buyers destination, the buyer has not yet incurred any freight but owes the seller for the goods. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.

What’s the Difference Between FOB Shipping Point and FOB Destination?

Constraints in the information system or delays in communication often cause a slight timing difference between the legal transfer of ownership and the accounting records. The term “freight on board” originated from the days of sailing ships when goods were “passed over the rail by hand,” as defined in Incoterm. The term “FOB” was used to refer to goods transported by ship since sea transport was the main method of transporting cargo from far countries.

If the transfer point isn’t meticulously defined, documented, and understood by both parties, it can lead to disputes. Incoterms (International Commercial Terms) are a set of internationally recognized standards that define the roles of buyers and sellers in the transfer of goods in international and domestic trade. Only upon delivery, at the predetermined destination, do the costs and responsibilities transfer to the buyer.

Other FOB Terms

Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. FOB, while advantageous in many ways, comes with inherent transit risks, especially for the party responsible during the shipping. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping.