2 5 Shipping Terms Financial and Managerial Accounting

Suppose CBS buys 40 tablet computers at $60 each on credit. The purchase contract shipping terms list FOB Shipping Point. The shipping charges amount to an extra $5 per tablet computer. All other taxes, fees, and insurance are included in the purchase price of $60. When products are received at the location the customer specifies, ownership passes from the seller to the buyer.

If something happens to damage or destroy the goods before they reach the FOB location, the seller would be required to replace the product or reverse the sales transaction. With a periodic system, cost of goods sold is not calculated until financial statements are prepared. The beginning inventory balance is combined with the total acquisition costs incurred this period. Merchandise still on hand is counted and its cost is determined. All missing inventory is assumed to reflect the cost of goods sold. When a periodic inventory system is in use, how are both the ending inventory and cost of goods sold for the year physically entered into the accounting records?

Explain the terms FOB shipping point and FOB destination. What are the accounting and business…

In North America, the fob shipping point “FOB” is written in asales agreementto determine when the liability and responsibility for the shipped cargo transfers from the seller to the buyer. When it is indicated as “FOB Origin,” it means that the transfer occurs at the seller’s shipping dock when the goods are safely on board the ship. Freight cost incurred by the seller is called freight-out and is reported as a selling expense that is subtracted from gross profit in calculating net income. In evaluating the gross and net methods, notice that the Purchase Discounts Lost account indicates the total amount of discounts missed during a particular period.

Discuss the implications of accounting concepts and conventions on financial statements. Explain the importance of a bank reconciliation statement. Give some examples of possible items that cause differences between the cash balance in the general ledger and the bank statement balance.

Accounting for FOB Shipping Point Terms

Shipping terms affect the buyer’s inventory cost because inventory costs include all costs to prepare the inventory for sale. This accounting treatment is important because adding costs to inventory means the buyer does not immediately expense the costs and this delay in recognizing the cost as an expense affects net income. Conversely, with FOB destination, the title of ownership is transferred at the buyer’s loading dock, post office box, or office building. Once the goods are delivered to the buyer’s specified location, the title of ownership of the goods transfers from the seller to the buyer. Consequently, the seller legally owns the goods and is responsible for the goods during the shipping process. ”) and all units that are no longer present are assumed to have been sold. The amount of missing inventory is determined in this process.

• During a time when the inflation rate is increasing each year for a number of years, are adaptive expectations or rational expectations likely to give the more accurate forecasts?
• The buyer is not responsible for the goods during transit; therefore, the buyer often is not responsible for paying for shipping costs.
• In international trade, ownership of the cargo is defined by the contract of sale and the bill of lading or waybill.
• This designation also identifies the party responsible for transportation costs and items damaged while in transit.
• If something happens to damage or destroy the goods before they reach the FOB location, the seller would be required to replace the product or reverse the sales transaction.