Describe how merchandise purchases flow through both an FOB destination and an FOB shipping point process. DES. Delivered Ex Ship, which requires the seller to deliver products to a particular shipping port, where the buyer will take delivery on arrival. That also means that if a pallet of jewelry is lost or damaged in shipment, the buyer must file any claims for compensation – not the seller – since the purchase became the buyer’s responsibility directly. In FOB shipping, the sellers/ suppliers are the ones who are responsible for making clearance for the goods at the export docks.
- The buyer takes responsibility for the transport cost and liability during transportation.
- Thus, the sale is recorded when the shipment leaves the seller’s facility, and the receipt is recorded when it arrives at the buyer’s facility.
- The buyer is responsible for the cost such as transportation cost, customs clearance, and taxes are when the goods are on the ship.
- Then, the seller sends an invoice to the buyer for reimbursement when the items are delivered.
- That distinction is important as it specifies who is liable for goods that have been lost or damaged during shipping.
Identify and explain the costs that should be included in inventory and the cost of goods sold. Explain why the distinction between these two types of costs is important. Define and explain the meaning of a predetermined manufacturing overhead rate that is applied in a job order costing system. Explain how the predetermined factory overhead rate can be used in job order fob shipping point cost accounting to assist managers in pricing jobs. Define the concept of an economic entity and explain its importance in preparing consolidated financial statements of a parent company with its controlled subsidiaries. Explain in your own words what FOB shipping and FOB destination mean from the vantage point of a buyer and seller in a sale of goods transaction.
More Definitions of FOB Shipping Point
The transportation department of a forward-thinking customer could choose FOB shipping point terms over FOB destination ones to maintain tighter control over the logistics process. These provisions outline the point when responsibility for risk of loss shifts to the buyer, who covers the freight charges, delivery location and time, and the payment terms for the shipments. The term “FOB” is used in international and freight shipping. Navigating the potential risks and liabilities of the FOB shipping point can be challenging.
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FOB Add-on Terms
Also, under these terms, the buyer is responsible for the cost of shipping the product to its facility. Working with a 3rd party logistics provider like ShipCalm allows businesses to simplify the process of understanding incoterms. ShipCalm is an expert in all things shipping, from shipping terms and logistics to affordable order fulfillment and management services. Especially for international shipments that need to be streamlined as much as possible, ShipCalm is here to help.