When a seller pays to ship merchandise to a purchaser

When a seller pays to ship merchandise to a purchaser - Inc...

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When a seller pays to ship merchandise to a purchaser, the seller records the cost as a delivery  expense, which is considered an operating expense and, more specifically, a selling expense. When  a purchaser pays the shipping fees, the purchaser considers the fees to be part of the cost of the  merchandise. Instead of recording such fees directly in the purchases account, however, they are  recorded in a separate expense account named  freight-in  or  transportation-in , which provides  management with a way to monitor these shipping costs.  If Music World pays a shipping company $30 for delivering the merchandise from Music Suppliers, 
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Unformatted text preview: Inc., Music World increases (debits) freight-in for $30 and decreases (credits) cash for $30. Freight terms, which indicate whether the purchaser or seller pays the shipping fees, are often specified with the abbreviations FOB shipping point or FOB destination. FOB means free on board . FOB shipping point means the purchaser pays the shipping fees and gains title to the merchandise at the shipping point (the seller's place of business). FOB destination means the seller pays the shipping fees and maintains title until the merchandise reaches its destination (the purchaser's place of business)....
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