Shipping terms

Shipping terms help answer a year-end question: which entity controls goods that are between the seller and buyer? The answer affects inventory, the related payable or receivable, revenue, and cost of goods sold. Physical location alone does not settle it.

Under an ordinary free on board shipping point term, transfer occurs when the seller gives the identified goods to the carrier. Under an ordinary free on board destination term, transfer occurs when the goods reach the stated destination. These meanings are useful starting points. They are not a reason to ignore the rest of the contract.

Read the executed agreement for the promised transfer condition. Then inspect carrier acceptance, the bill of lading, delivery records, customer acceptance, redirection rights, insurance terms, and events after year-end. The contract may include a customer-acceptance clause or a bill-and-hold request. A right to redirect the goods can also change the analysis. Other contract terms may do the same. ASC 606-10-55-82 states that some contracts transfer control at shipment and others at delivery, depending on their terms. The label does not replace that control conclusion.

Topic 330 connects reporting-date inventory with the balance of costs that applies to goods on hand. See ASC 330-10-05-3. After the transfer event is supported, include the goods in the controlling party's reporting-date inventory population and align the related accounts to the same date.

Freight responsibility is a separate contract fact. A buyer's qualifying cost to bring inventory to its present location and condition may enter inventory cost. A seller's delivery cost may be a fulfillment or selling cost. Do not derive that classification from an FOB label without reading the arrangement.

Use the Cedar Trail rights reconciliation and then complete the cutoff practice.