FOB Shipping Point
FOB stands for “Free On Board.” So what’s a FOB shipping point? Put simply, it means that a buyer of goods takes delivery of their order after they’ve left the supplier’s shipping premises. When a shipment is “FOB” to the seller’s location, as soon as that shipment leaves the seller’s premises or storage warehouse, the seller can mark and record that sale as being complete. So, at that point, it’s the buyer that owns the product and has to pay for delivery charges.
For example, if a shipment is damaged in transit on its way to the buyer, it’s the buyer who has to file a claim to get their money back.
In other words, “FOB shipping point” means the ownership of goods is transferred from the seller to the buyer as soon as the public carrier accepts the products from the seller.
So, it’s best for the buyer to have the shipping rates stated as FOB or the FOB destination. So, if a buyer is in New York, then the shipping terms would read FOB New York. Then, when the item arrives—and providing it’s not damaged and is precisely what the buyer ordered—the buyer can then accept the item. At that point, the sale is complete.
Is FOB vital in accountancy?
FOB is also a term used for accounting purposes. It means that when goods are in transit, a seller reports them as being a purchase. Still, the buyer, if the buyer is a business, would notify them as inventory.