Question

On April 27th, Ruth buys inventory from Meredith with the terms FOB Shipping Point. The truck delivers the inventory to Meredith on May 3rd.

Required: (A) On what date can Meredith record the Sales? And (B) On what date can Ruth record the Inventory? (C) Which company has to pay the transportation costs?

Answer 1

FOB Shipping Point or ‘Free on Board Shipping Point’ or ‘FOR Origin’ is a shipping term indicating that a buyer must pay for the delivery of the goods. This means that the title of the goods passes to the buyer as soon as the shipment leaves the seller’s warehouse (or shipping dock). It also means that the seller should record the sale when the goods leave the warehouse.

Here, the buyer owns the goods en route to its warehouse, and thus, must bear the delivery charges.

In this question assuming,

On 27 th April -goods dispatched from seller

On 3rd May - goods delivered to buyer by the truck.

A. Meredith should record sales on 27th April

B. Ruth should record purchase of inventory on 27th April.

C. Buyer company should pay the transportation charges.