Question

In: Accounting

What does FOB mean? What are the two types of FOB?


What does FOB mean?

What are the two types of FOB?

What account does the seller charge (debit) when she pays her own freight charges?

What account does the buyer charge (debit) when she pays her own freight charges?

What account does the seller charge (debit) when she pays the buyer's freight?


Solutions

Expert Solution

1 FOB(Free on Board) is a shipping term used to detrmine that whether the liability of the goods damaged or destroyed during shipping
falls on Buyer or seller
2 The two types of FOB are:
(i)FOB Shipping:Here the Buyer pays for the shipping costs and other ancilliary costs.
(ii)FOB destination:Here the Seller is responsible for payment of shipping and other ancilliary costs
3 The Seller shall debit Freight Charges or Transportation out and credit cash
4 The Buyer shall debit Merchndise Inventory and credit cash
5 If the seller pays Shipping charges on behalf of the Buyer then the shipping charges will be added to the Invoice
Accounts receivable will be debited and cash will be credited by the shipping charges amount

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