FOB destination – What is FOB destination?

FOB (Freight On Board) Destination is a shipping term that means that the legal title to the goods remains with the seller until the goods reach the location of the buyer.

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The FOB destination is, essentially, the location where the actual sale of the goods occurred, and ownership changes hand from the seller to the buyer. This is important for the accounts, as it dictates when the amounts are entered in the records.

The FOB destination outlines terms indicating that the seller will incur the delivery expense to get the goods to the destination. 

This means that goods in transit should be reported as inventory by the seller since technically the sale doesn’t occur until the goods reach the destination.

The alternative terms for recording the sale in the records fall under FOB shipping point, which indicates that the sale is recorded when the seller ships the goods.

FOB Destination in accounting

The point of FOB destination is to transfer the title to the goods to the buyer as soon as they’ve arrived at the buyer’s location. 

Only once goods have arrived at the final shipping destination should they be reported as a purchase and as inventory by the buyer. Equally, only once the goods reach the destination will the seller record it as a sale and an increase in accounts receivable.

When a sale is made, accountants must record revenues for the merchandiser and manufacturer. The term FOB destination tells the accountant that the sale officially occurs when it arrives at the destination (the buyer’s receiving dock).

Shipping & freight costs in FOB Destination

The FOB Destination terms also apply to the cost of shipping and the responsibility for the goods. This means that the seller is the responsible party and must undertake the cost of any damages or extra fees incurred during the delivery process.

When it comes to the cost of shipping, accountants follow the shipping terms to determine who’s responsible for this expense. If the sale occurs when the goods reach their final destination (FOB Destination), then the seller is responsible for the cost of transporting the goods to the buyer’s unloading dock and will record this cost as a delivery expense.