FOB shipping point – What is FOB shipping point?

‘FOB (Free On Board) Shipping Point’ is a shipping term that means that ownership of goods is transferred to the buyer as soon as the public carrier accepts the goods from the seller

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FOB shipping point terms indicate that the buyer assumes ownership of the goods as soon as they leave the supplier’s location. They also indicate that the buyer must pay to have the goods shipped.

Unlike FOB shipping point, FOB destination, indicates that the ownership of goods is not transferred to the buyer until they arrive at their destination.

In Accounting

The point of FOB shipping point terms is to transfer the title to the goods to the buyer at the shipping point. Goods in transit should therefore be reported as a purchase and as inventory by the buyer, and as a sale and an increase in accounts receivable by the seller.

When a sale is made, accountants must record revenue for the merchandiser and manufacturer. The term, FOB Shipping Point, indicates that the sale occurred at the shipping point—at the seller’s shipping dock.

Shipping/freight costs

When accounting for shipping costs, accountants assume follow the shipping terms to determine who is responsible for this expense. If the sale occurred at the shipping point (FOB Shipping Point), then the buyer is expected to pay the cost of transporting the goods to their location and will therefore record this cost as Freight-In.

Why it matters

By designating the point at which cash changes hands and the ownership of goods officially is transferred from one party to another, it is clear where the responsibility falls in regards to shipping matters/delays/unexpected costs, and more.

It’s important for the moment of sale to be accurately recorded for this reason, and also for entry into the company records.