AC41 SYNTHESIS NO.

F.O.B is an abbreviation for “free on board”. When the freight terms are FOB Shipping Point,
the buyer shoulders the shipping cost. If the terms are FOB Destination, the seller bears the
shipping cost. In Freight Prepaid, the seller pays the transportation cost before shipping the
goods sold. In Freight Collect, the freight entity collects from the buyer.

1. Shipping Terms and its effect on both buyer and seller of merchandise.
(a) FOB Destination, Freight Prepaid
The shipper pays the freight cost, and maintains ownership while goods are in transit.
(b) FOB Destination, Freight Collect
The buyer or the receiver pays freight shipping fees upon delivery. The shipper assumes
liability and ownership during transit, means that the buyer takes ownership from the shipper
upon delivery of goods, usually at the buyer’s receiving dock.
(c) FOB Shipping Point, Freight Prepaid
The seller adds freight shipping costs to the buyer invoice. The buyer assumes
ownership and liability of goods at the point of origin.
(d) FOB Shipping Point, Freight Collect
The buyer pays for shipping and freight costs, assuming all liability for the goods.

2. Major differences in 2 Accounting Inventory System

Under Perpetual Inventory System, the inventory account is continuously updated. This
system is more advisable for firms that sell low volume but high-prices goods. When an entity
uses Perpetual Inventory System, the Ending Inventory should reconcile with the actual physical
count at the end of the period. The count provides an independent check on the amount of
inventory that should be reported at the end of the period.

The Periodic Inventory System is primarily used by business that sell relatively
inexpensive goods. A characteristic of this Inventory System is that no entries are made to the
inventory account as the merchandise is bought and sold. When goods are purchased, a
separate set of accounts (purchases, purchases discounts, purchases returns and allowances
and transportation in) is used to accumulate information on the net cost of the purchases. Only
at the end of the period, when the inventory is counted, will entries be made to the inventory
account to establish its proper balance.

Mañanita Honeylet M.
BAMM1A