FOB Shipping Point – Meaning Of FOB Shipping Point – FOB Destination

FOB shipping point is an abbreviation for “Free on Board Shipping Point” or “FOR Origin”. It is a shipping term that indicates that a buyer has to pay for goods to be delivered. What this simply means, is that as soon as the shipment leaves the warehouse, (or shipping dock), the title of the goods is transferred to the buyer. With this, the seller is to record the sale when the goods leave the warehouse.

With FOB shipping point, the buyer takes over the ownership of the goods en route to its warehouse, and thus, is to bear the delivery charges. If the goods get damaged in transit, the buyer is to file a claim with the insurance company.

FOB Shipping Point & FOB Destination

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

  • When the purchase of goods as well as when the related liability occurs.
  • When the sale of goods as well as when the related receivable occurs.
  • If the seller or buyer pays the shipping costs.

FOB Shipping Point

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

FOB Shipping Point

Free On Board (FOB) Definition – Investopedia

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FOB shipping point” or “FOB origin” means the buyer is at risk once the seller ships the product. The purchaser pays the shipping cost from the factory and …

FOB Shipping Point vs. FOB Destination – Indeed

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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

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The FOB shipping point (or FOB origin) means that the buyer will receive the title for the goods they purchased once they’ve reached the shipping dock. After

FOB Destination

In a situation where the seller of goods quotes a price, that is FOB destination. Here, the sale ensues when they are unloaded at the buyer’s destination. What this means is that the seller owns the goods while they are on the truck and the seller is responsible for the shipping costs.

Other Terms Encountered when Dealing with FOB Shipping Point

You are likely to come across these terms when dealing with the FOB shipping point, which you may have to define when developing your shipment process. Let’s outline them one after the other for a better understanding:

Bill of Lading

A bill of lading is used when a seller ships a third-party. A bill of lading acts as a legally binding document that the seller signs when delivering the goods to the carrier.

Here, the carrier also signs the bill of lading as the goods are being delivered to the buyer. This bill is a shipment receipt for the buyer and offers protection to the seller in the case of any dispute.

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Liability Issues

A buyer is responsible for the goods during shipping, thus in the event of any damage or loss, the legal liability is the buyers. The buyer, therefore, is the one who will be required to file a claim to be reimbursed.

In the case of FOB destination, it is the seller who will have the liability if there is a damage or loss of goods before they arrive at the port of destination or buyer’s location. If this happens, the seller is under the obligation of providing the buyer with a new shipment.

Recognizing Revenue

According to the generally accepted accounting principles (GAAP), a business has no right to record revenue until the transfer of risks and rewards of the goods passes from the seller to the buyer. When it comes to the FOB shipping point, the sale is complete when the shipment is sent off. But in the case of FOB destination, the sale becomes complete when the goods get delivered and are in the buyer’s possession.

Note that the timing difference, from shipping terms, is typically just a few days and is not likely to affect periodic financial statements. Be it as it may, a CPA preparing GAAP financial statements will have to put in more scrutiny.

Since accountants often review shipping records and documentation during a “cutoff period”, which is usually around the end of the fiscal year right before and right after, it means that, if in your sales, there is FOB destination inventory which was shipped just before the cutoff (a day or two) or any inventory which is yet to be shipped, the business will not record the sale until the next fiscal year starts.

About Chris Git

I am an SEO person with over five years of experience. I am mostly into product lunch and review. I feed on tech, Dring Tech, and Dream tech. My hobby is knowing how everything works. You are welcome to my world of content development and product review at https://logingit.com/ I am also a financial analyst with an organization. It has been my sincere interest to help people solve their issues on credit cards. There are lots of questions in the mind of many credit card users. These range from which credit card is best? How many credit cards should I have?

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