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Best Books Warehouse distributes hardback books to retails stores and extends credit terms of 2/10, n/30 to all

of its
customers. At the end of May, Best Books inventory consisted of 240 books purchased at $1,200. During the month of
June, the following transactions occurred.

June 1 Purchased 160 books on account for $5 each form Ex Libris Publishers, FOB destination, 2/10, n/30. The
appropriate party also made a cash payment of $50 for the freight on this date.

Inventory 800
Accounts Payable 800

3 Sold 120 books on account to Readers-R-Us for $10 each.

Accounts Receivable 1200


Sales 1200

Cost of Sales 600


Inventory 600

6 Received $50 credit for 10 books returned to Ex Libris Publishers

Accounts Payable 50
Inventory 50

9 Paid Ex Libris Publishers in full, less discount.

Accounts Payable 750


Inventory 15
Cash 735

15 Received payment in full from Readers-R-Us

Cash 1200
Accounts Receivable 1200

17 Sold 120 books on account to Bargain Books for $10 each

Accounts Receivable 1200


Sales 1200

Cost of Sales 600


Inventory 600

20 Purchased 110 books on account for $5 each from Bookem Publishers, FOB destination, terms 2/15, n/30. The
appropriate party also made a cash payment of $50 for the freight on this date.

Inventory 550
Accounts Payable 550

24 Received payment in full form Bargain Books

Cash 1200
Accounts Receivable 1200

26 Paid Bookem Publishers in full.

Accounts Payable 550


Discount Received 11
Cash 539

28 Sold 110 books on account to Read-N-Weep Bookstore for $10 each

Accounts Receivable 1100


Sales 1100

Cost of Sales 550


Inventory 550

30 Granted Read-N-Weep Bookstore $150 credit for 15 books returned costing $75.

Sales Returns and allowances 150


Accounts Receivable 150

Inventory 75
Cost of Sales 75

Best Books Chart of Accounts are as follows:

101 Cash 112 Accounts Receivable 120 Inventory 201 Accounts Payable
401 Sales 405 Sales Discounts 412 Sales Returns and Allowances
505 Cost of Sales 508 Discount Received

Instructions:

Journalized the transactions

FOB Accounting Definition


FOB accounting deals with the treatment of freight charges and how they are recorded in
the accounting system.
FOB means Free on Board and is an abbreviated term used in shipping. It is important to
understand the nature of the term accounting FOB, as it will affect how the freight charges
are posted to the accounting records.
Having decided that the terms of the contract are FOB, it is now necessary to choose the
point at which responsibility passes from the seller to the buyer. The FOB point can either
be the buyers destination, or the place from which the goods are shipped – the shipping
point.

FOB Destination Accounting


FOB destination, is used to mean the seller of the goods pays all expenses in putting the
goods ‘on board’ the transport, and delivering them to the buyers destination. Until the
goods arrive at the destination they should be included in the inventory of the seller as
goods in transit.

Once the goods are at the buyers destination, the ownership of the goods and the risk
passes to the buyer. The buyer now has an obligation to pay for the goods and is
responsible for all future expenses.
As an example of FOB destination accounting, suppose the value of the goods is 5,000
and the freight expense to the buyers destination of 600 is paid in cash by the seller.

Account Debit Credit


Accounts receivable 5,000
Sales 5,000
Freight out 600
Cash 600
Total 5,600 5,600
Seller Accounts – FOB Accounting Journal

As the goods were sold FOB destination the seller pays the expense of 600, and records
this as Freight out under selling expenses.

Account Debit Credit


Purchases 5,000
Accounts payable 5,000
Total 5,000 5,000
Buyer Accounts – FOB Accounting Journal

At the buyers destination, the buyer has not yet incurred any freight but owes the seller for
the goods.
FOB Shipping Point Accounting
FOB shipping point or FOB origin, is used to mean the seller has to get the goods to the
shipping point, but the buyer is responsible for the expense of transporting the goods from
the shipping point to their destination.
Once the goods are at the shipping point, the ownership of the goods and the risk passes
to the buyer and should be included in the inventory of the buyer as goods in transit. The
buyer now has an obligation to pay for the goods and is responsible for all future
expenses.
As an example of FOB shipping point accounting, suppose the value of the goods is again
5,000 and the freight expense from the shipping point of 600 is paid in cash by the buyer.

Account Debit Credit


Accounts receivable 5,000
Sales 5,000
Total 5,000 5,000
Seller Accounts – FOB Accounting Journal

As the goods were sold FOB shipping point, the seller does not have to pay the freight
cost and is now owed the 5,000 for the goods.

Account Debit Credit


Purchases 5,000
Accounts payable 5,000
Freight in 600
Cash 600
Total 5,600 5,600
Buyer Accounts – FOB Accounting Journal

The buyer has to pay for the goods to be transported from the shipping point. The
expense is recorded as Freight in and forms part of purchases.

FOB Shipping Point Freight Prepaid


A variation on FOB shipping point is were the seller for convenience prepays the shipping
cost and recovers this from the buyer at a later date.

Account Debit Credit


Accounts receivable 5,000
Accounts receivable – Freight 600
Sales 5,000
Cash 600
Total 5,600 5,600
Seller Accounts – FOB Accounting Journal

As the goods were sold FOB shipping point, the seller does not have to pay the freight
cost. However, in this case the seller has prepaid the shipping cost on behalf of the buyer
and is now owed 5,600.

Account Debit Credit


Purchases 5,000
Accounts payable 5,000
Accounts payable – Freight 600
Freight in 600
Total 5,600 5,600
Buyer Accounts – FOB Accounting Journal

The buyer has to pay for the goods to be transported from the shipping point. The
expense is recorded as Freight in and forms part of purchases. As the shipping costs have
already been paid, the amount is owed to the seller.
It is important to note that under FOB shipping point terms, when the freight has been
prepaid by the seller, the buyer does not include the amount of freight when calculating
cash settlement discounts on the invoice.