What is the significance of FOB Shipping Point and FOB Destination?
Accountants report a merchandiser's and a manufacturer's revenues when a sale is made. The term, FOB Shipping Point, indicates that the sale occurred at the shipping point—at the seller's shipping dock. FOB Destination indicates that the sale will occur when it arrives at the destination—at the buyer's receiving dock.
Accountants also assume that the cost of transporting the goods corresponds to these terms. If the sale occurred at the shipping point (seller's shipping dock), then the buyer should take responsibility for the cost of transporting the goods. (The buyer will record this cost as Freight-In or Transportation-In.) If the sale doesn't occur until the goods reach the destination (terms are FOB Destination), then the seller should be responsible for transporting the goods until they reach the buyer's unloading dock. (The seller will record the transportation cost as Freight-Out, Transportation-Out, or Delivery Expense.)