Goods in transit are included in a purchaser’s inventory After the half-way point between the buyer and seller a O .At any time during transit b O .If the goods are shipped FOB destination c O .When the goods are shipped FOB shipping point d O
The Correct Answer and Explanation is:
Correct answer:
d ⭕ When the goods are shipped FOB shipping point
Explanation:
Goods in transit refer to items that have been sold and are currently being transported from the seller to the buyer. Whether these goods should be included in the buyer’s or seller’s inventory depends on the shipping terms, specifically whether the shipment is FOB shipping point or FOB destination.
Under FOB shipping point (Free On Board shipping point), the title and ownership of the goods transfer to the buyer as soon as the seller ships the goods. This means the buyer becomes responsible for the goods during transit, and they should be included in the buyer’s inventory even if the goods have not yet arrived. The buyer assumes both ownership and the risk of loss at the point of shipment.
In contrast, under FOB destination, ownership remains with the seller until the goods are physically delivered to the buyer’s location. In such cases, the goods stay in the seller’s inventory while in transit and are only transferred to the buyer’s inventory upon arrival.
The halfway point between the buyer and seller, or the exact physical location of the goods during transit, is irrelevant. Legal ownership and risk are determined by the shipping terms, not distance.
Goods in transit must be properly accounted for to ensure accurate financial statements. Including or excluding inventory at the wrong time can misstate cost of goods sold, net income, and inventory balances.
Therefore, when the shipping terms are FOB shipping point, goods in transit are included in the purchaser’s inventory from the moment the goods leave the seller’s premises. This complies with the accounting principle of recording assets when control or ownership is obtained.
Hence, the correct answer is: d. When the goods are shipped FOB shipping point.
