TRANSPORTATION COST

F.O.B. Shipping Point

● Refers to the “Freight on Board, Shipping Point”

● Ownership of the product is ​transferred to the buyer upon shipment
● Buyer​ becomes responsible for the costs of transportation

F.O.B. Point of Destination

● Refers to the ​“Freight on Board,​ ​Point of Destination”
● Ownership of the product is ​transferred to the buyer upon reaching​ ​the place of
destination
● Seller​ is still responsible for the costs of transportation

Freight Prepaid
● Actual payment of transportation costs was made by the
seller

Freight Collect
● Actual payment of transportation costs was made by the
buyer

F.O.B Shipping Point Freight Collect

F.O.B Destination Point Freight Prepaid

F.O.B Shipping Point Freight Prepaid

F.O.B Destination Point Freight Collect

Example 1:
Escobar sold ₱ 50,000 worth of merchandise to Flores. Terms: 2/10, n/30, ​FOB
shipping point,​ ​freight collect​. Freight charges amounted to ₱ 10,000.
FOB Shipping Point, Freight Collect
Example 2:
Escobar sold ₱ 50,000 worth of merchandise to Flores. Terms: 2/10, n/30, ​FOB
destination​ ​point, freight prepaid​. Freight charges amounted to ₱ 10,000.
FOB Destination, Freight Prepaid

**Accounts Payable varies sometime it could be cash**

Example 3:
Escobar sold ₱ 50,000 worth of merchandise to Flores. Terms: 2/10, n/30, ​FOB
shipping point,​ ​freight prepaid​. Freight charges amounted to ₱ 10,000.
FOB Shipping Point, Freight Prepaid

Example 4:
Escobar sold ₱ 50,000 worth of merchandise to Flores. Terms: 2/10, n/30, ​FOB
destination​ ​point, freight collect​. Freight charges amounted to ₱ 10,000.
FOB Destination, Freight Collect
Exercises:

Aug 1 - Purchased merchandise on account, ₱ 200,000; terms: 20, 3/15, n/30, FOB
shipping point, freight collect, ₱ 5,000

Purchases ₱ 160,000
Freight In 5,000
Accounts Payable ₱ 160,000
Cash 5,000

Aug 3 – Purchased merchandise for cash, ₱ 150,000, FOB destination, freight prepaid,
₱1,500

Purchases 150,000
Cash 150,000

Aug 5 – Purchased merchandise on account, ₱ 300,000; terms: 20, 10, 5/10, n/30, FOB
destination, freight collect ₱ 10,000

Purchases ₱ 216,000
Accounts Payable ₱ 206,000
Cash 10,000

Aug 14 – Purchased merchandise on account, ₱ 100,000; terms: 10, 5/10, n/30 FOB
shipping point, freight prepaid, ₱ 1,000

Purchases 90,000
Freight In 1,000
Accounts Payable 91,000

Aug 16 – Fully paid the goods purchased last Aug.1

Accounts Payable ₱ 160,000

Purchase Discount ₱ 4,800
Cash 155,200

Aug 18 – Fully paid the goods purchased last Aug.5

Accounts Payable 206,000

Cash 206,000
 PURCHASING ACTIVITIES

1.) ​Purchases
● Purchased goods intended for sale
● Debit balance

Basco Enterprise purchased goods from S Mfg. for reselling, ₱ 100,000 on account.

Purchases 100,000.00
Accounts Payable 100,000.00

2.) ​Freight-In
● Transportation incurred by the buyer
● Added to Purchases
● Debit balance

Incurred and paid delivery costs of ₱ 10,000 for goods purchased.

Freight-In 10,000.00
Cash 10,000.00

3.) ​Purchase Returns

● Used for goods returned to the seller
● Contra-purchase account
● Credit balance

Returned ₱ 7,000 worth of goods that do not meet agreed standards.

Accounts Payable 7,000.00

Purchase Returns 7,000.00

4.) ​Purchase Allowances

● Reduction on the agreed price usually due to damaged goods
● No actual return​ of products
● Contra-purchase account
● Credit balance

Received a credit memo for ₱ 3,000 worth of defective products.

Accounts Payable 3,000.00

Purchase Allowances 3,000.00 ​4

5.) ​Purchase Discount

● Reduction on the agreed price usually due to early payment
 ● Contra-purchase account
● Credit balance
Paid for goods purchased in transaction no. 1, and was granted a 2% discount due to early
payment.

Accounts Payable 90,000.00

Cash 88,200.00
Purchase Discount 1,800.00

SELLING ACTIVITIES

1.) ​Sales
● Revenue account
● Covers the cost of the merchandise sold as well as the profit
● Credit balance

Sold goods on account to B Retailers for a total price of ₱ 125,000.

Accounts Receivable 125,000.00
Sales 125,000.00

2.) ​Freight-Out
● Transportation cost incurred by the seller
● Expense account
● Debit balance

Incurred and paid ₱ 2,000 transportation cost in delivering products in trans. no. 6.

Freight-Out 2,000.00
Cash 2,000.00

3.) ​Sales Returns

● Used for goods returned by the buyer
● Contra-sales account • Debit balance

Issued a credit memo for ₱ 6,000 worth of goods returned by B Retailers because these did
not conform with specifications ordered.

Sales Returns 6,000.00

Accounts Receivable 6,000.00

4.) ​Sales Allowances

● Reduction on the agreed price usually due to damaged goods
● ​No actual receipt​ of products
● Contra-sales account
● Debit balance
Granted a ₱ 9,000 sales allowance to B. Retailers due to defective goods Delivered.

Sales Allowances 9,000.00

Accounts Receivable 9,000.00

5.) ​Sales Discount

● Reduction on the agreed price usually due to buyer’s early payment
● Contra-sales account
● Debit balance

Granted a 3% cash discount to B Retailers due to early payment.

Cash 106,700.00
Sales Discount 3,300.00
Accounts Receivable 110,000.00