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Ownership of Goods

Brian Krogol
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Alright. Another issue that we come across when we're dealing with inventory at the end of the period is whether or not we own inventory that's in the warehouse or inventory that's on the way to the warehouse that's being delivered maybe we own some of that stuff. All right so let's see what could happen. We might have talked about this before already. The F. O. B. Shipping point F. O. B. Stands for free on board. And this is talking about shipping terms where you make a contract with the other person who's gonna own the shipment while it's being delivered. Okay So when we have F. O. B. Shipping point this means that the ownership of the goods it's going to change hands at the shipping point. Okay So look what we've got here we've got the supplier and then the supplier is gonna give the delivery to the give the product to the delivery in the shipping company and then they're gonna bring it to our warehouse. Right So F. O. B. Shipping point means that the the ownership is gonna change hands right here right? It's gonna change hands here because that's the shipping point right here is the shipping point. Right fo be shipping point. So what does that mean that if we have a purchase in transit? Okay well it belongs to the company that means that if we purchased something and on the day the last day of the year it's still on the way to the warehouse. Well in this situation we own these goods and they should be included in our inventory. Okay so if there were any um purchases we made that were fo be shipping point and they're still in transit, well they belong to us and we include those in inventory. Okay So let's look at the opposite an F. O. B. Destination right down here. Okay so still free on board F. O. B. This is where the ownership of the goods. Well this time it changes hands at the destination. Right? So now it's gonna change who owns it after it's been delivered. That's when it gets changed hands. So let's see in this situation we're gonna have a situation where we were going from our warehouse and then we put it on the shipping truck and then it gets to a customer. Okay So notice in the first situation that was when we were purchasing something, this is a situation where we're selling. So notice how how this sale is gonna be still belong to us right? Because in the F. O. B. Destination, well this is the destination right? The destination is the customer in this case. Right? So we own it during shipment right when we sell something F. O. B. Destination, we own it during shipment. So any F. O. B. Destination sales in transit belong to the company. Right? So on the last day of the year if we had sold something but it hasn't gotten to the customer yet and the terms were F. O. B. Destination. Well we have to include that in our inventory still, we haven't transferred it to the customer and we can't even take the revenue yet because it still belongs to us. Okay. So that's the deal with F. O. B. Shipping point in F. O. B. Destination. Obviously in this first situation, if we were purchasing something right? Where we have the supplier, shipping company and our warehouse up here and if we're purchasing, purchasing it, F. O. B. Destination? Well in that case, right. What would happen here if this was F. O. B. Destination? It would still belong to the supplier and we wouldn't include it in our inventory. So the main trick is to think about, do you own it during transit? Right. Whether it's a purchase or a sale, just try and focus on is it ours based on this kind of flow with the delivery? Alright, so there we go, let's move on to one more topic related to ownership of goods. Alright, let's do that now.