FOB shipping point

Definition

FOB (Free On Board) shipping point means the buyer takes ownership of goods once they leave the seller's shipping dock. The buyer is responsible for shipping costs and bears any risks during transit.

5 Must Know Facts For Your Next Test

1. Title and risk of loss transfer to the buyer once goods are shipped.
2. Shipping costs are recorded as part of the inventory cost by the buyer.
3. FOB shipping point affects when revenue is recognized by the seller.
4. It impacts both purchase and sales transactions in accounting records.
5. In case of damage during transit, the buyer must handle claims with the carrier.

Review Questions

• When does ownership transfer in an FOB shipping point transaction?
• How are shipping costs treated in an FOB shipping point arrangement?
• What implications does FOB shipping point have on inventory valuation?

Related terms

FOB Destination:

Ownership transfers to the buyer when goods reach their destination, with the seller bearing transportation costs and risks until delivery.

Freight-In:

Shipping costs incurred by a purchaser to transport inventory from supplier to business location, included in inventory cost.

Inventory Valuation Methods:

Techniques like FIFO, LIFO, and Weighted Average used to assign cost to ending inventory and cost of goods sold.