Question

FREIGHT TERMS THAT REQUIRE THE BUYER TO PAY THE FREIGHT COST IS FOB SHIPPING POINT.

PLEASE EXPLAIN THE CORRECTNESS OF THIS STATEMENT AND PROVIDE YOUR OWN EXAMPLE TO SUPPORT YOUR ARGUMENT.

Answer 1

If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as FOB shipping point. As the terms suggest, FOB shipping point means that the sale takes place at the shipping point which means that the legal title is transferred at this point and that the seller is no longer responsible for the delivery of the merchandise.

In case of FOB destination that the sale takes place upon its arrival at the destination.

n/30 is a term commonly used while billing which indicates that n% discount would be given if payment is made within 30 days.

Under the FOB shipping point terms, the seller of the goods has the responsibility to take the goods to the point from where they are to be shipped to the buyer.

Usually, it is a place of common carrier, who will take the delivery of the goods to the buyer's place. Sale takes place when the goods are put to the shipping point or carrier. Seller has no responsibility after that. All the shipping costs and delivery costs during transportation will be borne by the buyer.

Under FOB shipping, since all the costs of transportation is borne by the buyer, so buyer will include the cost of shipping. which is usually called freight in, in the inventory cost, because these are the costs which are necessary to prepare the inventory ready for use / sale. So buyer will debit these costs to inventory account.