When goods are shipped fob destination and the seller pays the freight charges, the buyer

Q: When goods are shipped FOB destination the buyer would?

FOB destination is a contraction of the term Free on Board Destination. The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods arrive at the buyers receiving dock.

Significance of FOB Shipping Point and FOB Destination

The terms FOB shipping point and FOB destination have significance in accounting because they determine the following:

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Significance of FOB Shipping Point and FOB Destination
Example of FOB Shipping Point
Example of FOB Destination
FOB Costs and Payments
FOB Destination
Record Keeping
When goods are shipped FOB destination and the seller pays the transportation charge the buyer?
When goods are shipped FOB destination the buyer would?
Who will pay the freight if it is FOB destination?
What happens when something is delivered FOB destination?

When a sale of goods and the related receivable occur
When the purchase of goods and the related liability occur
Whether the seller or buyer pays the shipping costs

If the seller of goods quotes a price that is FOB shipping point, the sale takes place when the seller puts the goods on a common carrier at the seller's dock. Therefore, when the goods are being transported to the buyer, they are owned by the buyer and the buyer is responsible for the shipping costs.

If a seller of goods quotes a price that is FOB destination, the sale takes place when they are unloaded at the buyer's destination. This means that the seller owns the goods while they are on the truck and the seller is responsible for the shipping costs.

Example of FOB Shipping Point

Assume that a seller quoted a price of $900 FOB shipping point and the seller loaded the goods onto a common carrier on December 30. Also assume that the goods are in transit until they arrive at the buyer's location on January 2. On December 30, the seller should record a sale, an account receivable, and a reduction in its inventory.

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. These shipping costs will be an additional cost of the goods purchased.

Example of FOB Destination

Now assume that a seller quoted $975 FOB destination and the seller loaded the goods onto a common carrier on December 30. Also assume that the goods are on the truck until January 2, when they are unloaded at the buyer's location. On December 31, the goods were owned by the seller. Therefore, the seller should continue to report these goods in its inventory until January 2. The seller will be responsible for the shipping costs, which will be an expense in January when the sale is reported.

The buyer records the purchase, accounts payable, and the increase in inventory on January 2 when the buyer becomes the owner of the goods.

FOB stands for "freight on board." The term is used to describe the point in a transaction where a product being shipped becomes the property of the buyer. In an FOB Origin shipping arrangement, the buyer is the owner of the product as soon as it leaves the point of origin. In an FOB Destination shipping arrangement, the shipment becomes the property of the buyer when it reaches a specified destination in the shipping process.

Unless specified otherwise, the seller pays shipping costs in an FOB Destination arrangement.

FOB Costs and Payments

Whether the buyer or seller is responsible for shipping charges depends on the specific FOB Destination arrangement. In shipping arrangements classified as FOB Destination, Freight Collect, the buyer is responsible for shipping costs. In FOB Destination, Freight Prepaid & Add arrangements, the seller pays for the shipping costs but then passes on the cost to the buyer.

FOB Destination

The destination term makes the arrangement specific to the ownership of the property in transit. The distinction is important because the selling party retains ownership throughout the shipping process. On arrival at the destination, the buyer assumes control of the property.

An FOB Destination designation is common on high-value goods where the seller maintains liability for the goods until they are safely received and inspected. So who is paying for the shipping in this whole process?

The seller typically covers the shipping arrangements and costs in FOB Destination arrangements. If other terms are negotiated, however, the buyer may be liable for the expenses. The shipping company requires payment before shipping the goods, so the process of arranging and paying for shipping is all done in advance.

Shipping is often factored into the cost by the seller, making the process of paying and booking freight simple for everyone. The seller can factor that cost into its product, so the buyer is paying the shipping without a specific line item for the price.

If the seller does not factor shipping into the overall costs, it bills shipping as a line item on the total bill for the goods, which makes it clear that shipping is charged separately from the price of goods. Some sellers position shipping this way so that the cost of goods appears lower than the competitions' prices. After you make a purchase, however, the shipping cost brings the total back in line with other quotes where the shipping is built into the price.

Record Keeping

A major reason for shipping FOB Destination is to simplify record keeping. When goods are in transit, who has ownership? In the case of FOB Destination shipments, the goods remain in the seller's inventory while in transit.

After reaching the destination, the buyer assumes ownership and adds the goods to its inventory. The process ensures the goods are accounted for while in transit; otherwise, they enter a gray area of ownership. It also serves the accounting department, which must record the sale and transfer of inventory.

When the inventory is received and accepted at the destination, the delivery confirmation serves as proof of the goods leaving the seller inventory. The delivery confirmation serves a similar purpose for the buyer's accounting department. After the goods are accepted, they are logged in to inventory and accounted for as assets in the business.

Every FOB Destination received delivery confirmation should immediately go to accounting to keep track all inventory and financials relative to physical goods. While this is a common practice in business, private transactions can also use FOB Destination terms. In a private scenario, the new owner simply assumes title to the goods.

When goods are shipped FOB destination and the seller pays the transportation charge the buyer?

FOB (Freight on Board) Destination is a shipping term which means that the seller retains the legal title to the goods until they reach the location of the buyer. In this case, the seller pays for the transportation of the freight and takes care of additional freight charges until the goods reach the buyer.

When goods are shipped FOB destination the buyer would?

FOB destination is a contraction of the term "Free on Board Destination." The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods arrive at the buyer's receiving dock.

Who will pay the freight if it is FOB destination?

For FOB destination, the seller assumes all costs and fees until the goods reach their destination. Upon entry into the port, all fees—including duties, customs, taxes, and other fees—are borne by the buyer.

What happens when something is delivered FOB destination?

In a FOB shipping point contract, the seller transfers any title of ownership to the buyer upon the product leaving the seller's location. The buyer then has full ownership. In a FOB destination sale contract, the buyer may not receive the title of ownership until the product reaches the buyer's location.