fob point hand out

7/29/2019 Fob Point Hand Out

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Free On BoardPrinciples of Accounting

Created 2005

by Michael Worthington

Elizabeth City State University

Revenue Recognition Concept

Record revenue in the period in which itis earned

Fees Revenue is earned when theservice is nearly complete

AND Sales Revenue is earned when the _________ takes possession of the goods

FOB Point

Then the customer (buyer) pays the

freight costs from the FOB Point to the

delivery point

“Free On Board” is the point to which

the seller pays the freight costs

FOB

PointSeller pays freight Buyer pays freight

Seller Buyer



Sales Recognition

Customers take possession of the goods

when the legal title to the goods passesfrom the ____________ to the buyer

Title usually passes at the FOB POINT

So sales are generally recorded when

shipments of goods reach the FOB POINT

Importance of FOB Point

Under the USA Uniform Commercial Code

the legal title passes from the seller to the

buyer at the _____________

Then the customer officially owns the goods

FOB Destination

• “FOB Destination” means that theseller pays the entire freight charge

all of the way to the customer

• Goods are “free on board” for the _________ because the buyer does

not have to pay any freight costs

• In this case, sales are not recorded

until the goods are delivered



FOB Shipping Point

• “FOB Dock” or “FOB Shipping Point”

means that at the shipping point, theseller merely puts the goods on the truck

or railroad car from their loading dock

• So the buyer pays ______ of freight costs

• In this case, sales are recorded as soon

as the goods are shipped

TimingTerms of “FOB Destination” mean that the

seller pays ALL of the freight costs, so the

_______ passes when the goods are delivered

and that is when the sale is recorded

So if goods are shipped on December 31st

with terms of FOB Destination, the sale is

not recorded until the goods are delivered

in January

More About Timing

FOB Shipping Point means that the buyer

pays ________ of the freight, so title passes

and the sale is recorded as soon as the

seller loads the truck or railroad car

If goods are shipped on December 31st

with terms of FOB Shipping Point, the sale

is recorded in December as soon as the

goods are loaded on a truck or railroad car



FOB Destination

Goods were shipped on October 28th withterms of FOB Destination

The order was delivered on November 2nd

Click below on the name of the month inwhich the sale should be recorded

October November

FOB Shipping Point

Goods were shipped on March 28th

with terms of FOB Shipping Point

The order was delivered on April 2nd

Click below on the name of the monthin which the sale should be recorded

March April

CORRECT!Since the terms were FOB Shipping Point, the sale is

recorded in March as soon as the goods are shipped

THE END

Under the Uniform Commercial Code,

title to goods (ownership) passes fromthe buyer to the seller at the FOB Point

So the FOB Point determines WHO owns

the goods at any point in time

fob point hand out

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