Question

Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December.

Requirements

Under Dobbs’s FOB policy, when should the company record a sale?

Do you approve or disapprove of Dobbs’s manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Dobbs’s practice.)

Answer 1

FOB stands for Free on board. FOB shipping point is set of delivery terms that transfers the tittle and risk & rewards in goods to the buyer as and when the goods are placed on the truck.

Any damage for the goods in transit the buyer is responsible as the owner ship in goods is already transferred to the buyer.

The revenue is to be recorded as and when the goods are shipped to the buyer.

In the given problem the shipping terms are FOB shipping point so the sale revenue is to to be recorded as and when the goods are shipped to the buyer.

The procedure followed by the Kathy Dobbs is to delay the shipping is not going to effect any accounting procedure but the revenue of the current year and next year are going to be effected as result of her decision they may either under or over stated as result of the decision so it is better to follow a standard procedure to avoid such inconsistencies.