Ownership of Goods in Transit

Ownership of goods in transit is determined by the shipping terms that are agreed by both parties. When the
terms are F.O.B. Destination goods in transit are retained by the seller, ownership of goods is only
transferred when the buyer receives the goods; When terms are F.O.B. Shipping Point, goods in transit are
retained by the buyer, ownership of goods is transferred to the buyer the moment the seller ships the goods.

Sales and Purchases

In F.O.B. Destination, Sales and Purchases are recognized when the buyer receives the goods. In F.O.B.
Shipping Point, Sales and Purchases are recognized when the goods leave the seller’s place of operations
or when the goods are shipped.

Illustration.

Ran Canete, the accountant of DAGAMI Co. has reported the balances of the following accounts on
December 31, 20A at the end of its annual accounting period.

Sales P 500,000
Purchases 350,000
Inventory per Actual Count 200,000

During the conduct of the “cut-off test“, you gathered the following information:

1. DAGAMI Co. shipped goods on Dec. 25, 20A and the buyer received it on Jan. 4, 2OB, terms is F.O.B.
Destination. The company recorded it as Sales as of Dec. 31, 20A.

Owner of goods in transit is the seller, therefore, as of year-end, Sales should not be recorded because the
buyer has not yet received the goods. Consequently, the buyer will record Purchases when he receives the
goods.

2. DAGAMI Co. shipped goods on Dec. 27, 20A and the buyer received it on Jan. 2, 2OB, terms is F.O.B.
Shipping Point. The company recorded it as Sales as of Dec. 31, 20A.

Owner of goods in transit is the buyer, therefore, as of year-end, it is appropriate that Sales were
recognized since ownership was transferred to the buyer the moment the seller shipped the goods.
Consequently, the buyer should record Purchases.