Friday, 15 November 2013

Different Terms used for Goods in Transit and accounting for each Case

Inventory Ownership Issue - Goods InTransit

Simply put; “goods with transit” are goods staying shipped from seller in order to buyer at year-end.

At year-end, any goods in transit by seller to buyer may possibly properly be includable available as one, and only one, of those parties’ inventories—based on T&C of the sale.


Underneath traditional legal and accounts processing interpretation, goods are within the inventory of the firm financially liable for transportation costs. This responsibility might be indicated by shipping terms such as ‘free on board’ (FOB), ‘free alongside’ (FAS), ‘cost-insurance-freight’ (CIF), ‘cost-and-freight’ (C&F).

Let's talk about this one-by-one. Go through on…

(a) FOB Term – The word FOB can come with two ways:

FOB shipping point – Transport costs are paid because of the buyer and title passes if the carrier takes possession; thus these goods are perhaps the buyer’s inventory while with transit.
FOB destination – transport costs are paid because of the seller and title doesn't pass until the carrier delivers items to the buyer; thus these goods are perhaps the seller’s inventory while with transit.
[Info_Box] If an FOB getaway (or FOB shipping point) indicates a specific location at which title towards goods is transferred, such as “FOB California, ” which means that the seller retains identify and risk of loss before the goods are delivered into a common carrier in California which will act as an agent for the buyer. [/Info_Box]

(b) FAS Term – A new sale transaction with FAS (free alongside) phrases means the seller—who ships—must tolerate all expense and risk associated with delivering the goods towards dock next to (alongside) your vessel on which they need to be shipped. The buyer bears the expense of loading and of shipment; thus title passes if the carrier takes possession with the goods.

(c) CIF Term – In a CIF (cost, insurance, and freight) contract the buyer agrees to pay in a lump sum the expense of the goods, insurance expenses, and freight charges. In a C&F contract, the buyer promises to pay a lump sum that includes the expense of the goods and many freight charges. In possibly case, the seller must deliver items to the carrier and pay the prices of loading; thus both title as well as risk of loss pass towards buyer upon delivery with the goods to the company.

(d) C&F Term – As comparable to the CIF term, except that it is without insurance premium coverage because of the seller.

Keep in mind that these are meant only in order to define normal terms as well as usage; actual contractual arrangements between the buyer and a given seller can differ widely. The accounting therapy, however, should in all cases attempt to mirror the substance with the legal terms established between the parties.

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