{"id":219906,"date":"2025-05-27T07:10:36","date_gmt":"2025-05-27T07:10:36","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=219906"},"modified":"2025-05-27T07:10:38","modified_gmt":"2025-05-27T07:10:38","slug":"what-journal-entry-is-recorded-for-the-buyer-when-a-buyer-pays-freight-and-the-terms-are-fob-shipping-point","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/27\/what-journal-entry-is-recorded-for-the-buyer-when-a-buyer-pays-freight-and-the-terms-are-fob-shipping-point\/","title":{"rendered":"What journal entry is recorded for the buyer when a buyer pays freight and the terms are FOB Shipping point"},"content":{"rendered":"\n<p>What journal entry is recorded for the buyer when a buyer pays freight and the terms are FOB Shipping point?<\/p>\n\n\n\n<p><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-0-color\">The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Journal Entry for Buyer Paying Freight (FOB Shipping Point)<\/h3>\n\n\n\n<p><strong>Journal Entry:<\/strong><\/p>\n\n\n\n<pre class=\"wp-block-code\"><code>  Inventory (or Freight-In)    XXX  \n     Cash (or Accounts Payable)     XXX\n<\/code><\/pre>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation:<\/h3>\n\n\n\n<p>When goods are shipped under <strong>FOB (Free On Board) Shipping Point<\/strong> terms, ownership of the goods transfers from the seller to the buyer <strong>as soon as the goods leave the seller&#8217;s shipping dock<\/strong>. This means the <strong>buyer assumes responsibility for the goods during transit<\/strong>, including any shipping or freight costs.<\/p>\n\n\n\n<p>In this situation, if the <strong>buyer pays for the freight<\/strong>, the cost is considered part of the total <strong>cost of acquiring inventory<\/strong>, not a separate expense. According to the matching principle in accounting and <strong>Generally Accepted Accounting Principles (GAAP)<\/strong>, all costs necessary to bring inventory to its present condition and location should be capitalized. Therefore, the <strong>freight cost is added to the inventory account<\/strong>, increasing the value of the inventory on the balance sheet.<\/p>\n\n\n\n<p>The journal entry typically debits the <strong>Inventory account<\/strong> (or a sub-account called <strong>Freight-In<\/strong>) and credits <strong>Cash<\/strong> (if paid immediately) or <strong>Accounts Payable<\/strong> (if paid later). This reflects that the buyer has incurred an additional cost to acquire the inventory, which will be matched with revenue when the inventory is eventually sold.<\/p>\n\n\n\n<p>Using a concrete example: suppose a company buys goods for $10,000 FOB Shipping Point and pays $500 for freight. The buyer will make two entries:<br>1.<\/p>\n\n\n\n<pre class=\"wp-block-code\"><code>  Inventory        10,000  \n     Accounts Payable       10,000\n<\/code><\/pre>\n\n\n\n<ol start=\"2\" class=\"wp-block-list\">\n<li><\/li>\n<\/ol>\n\n\n\n<pre class=\"wp-block-code\"><code>  Inventory (or Freight-In)     500  \n     Cash (or Accounts Payable)     500\n<\/code><\/pre>\n\n\n\n<p>This ensures that the total inventory cost is recorded as <strong>$10,500<\/strong>, which will be used to calculate <strong>Cost of Goods Sold (COGS)<\/strong> when the inventory is sold. Properly recording freight under FOB Shipping Point ensures accurate inventory valuation and financial reporting.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/learnexams.com\/blog\/wp-content\/uploads\/2025\/05\/learnexams-banner4-37.jpeg\" alt=\"\" class=\"wp-image-219907\"\/><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>What journal entry is recorded for the buyer when a buyer pays freight and the terms are FOB Shipping point? The Correct Answer and Explanation is: Journal Entry for Buyer Paying Freight (FOB Shipping Point) Journal Entry: Explanation: When goods are shipped under FOB (Free On Board) Shipping Point terms, ownership of the goods transfers [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-219906","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/219906","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=219906"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/219906\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=219906"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=219906"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=219906"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}