PHYSICAL GOODS INCLUDED IN INVENTORY
GENERAL RULE:
A company should record purchases when it obtains legal title to the goods.
SPECIAL CONSIDERATION:
1. Goods in transit
- What do we do with purchases that remains in transit or not yet received at the end of a
fiscal/acctg period.
*FOB shipping point – ownership of the goods is transferred upon shipment of the
goods. If the good is still in transit, it is own by the buyer.
*vs. FOB destination – it is when the good is received by the buyer that the ownership of
the goods is transferred from the seller to the buyer.
:. When the goods are purchase and still in transit at the end of the period and the
shipping term is FOB destination, then the goods in transit is still owned by the seller and the
seller should record the goods in transit as part of its inventory.
a. Freight collect – charges on the goods shipped, is not yet paid. The courier shall
collect the shipping cost from the buyer. The freight charge is paid by the buyer.
b. Freight prepaid- the freight charges for the goods shipped is already paid by the
seller.
c. FAS ( free alongside) – the buyer pays for the cost of loading and shipment therefore
the title of the goods is pass to the buyer. When the carrier takes position of the
goods
d. Ex ship – the seller bears all the expenses and risk of lost until the goods are
unloaded and deliver to the buyer.
e. CIF (cost, insurance, and freight) – the buyer agrees to pay in a lump sum the cost of
the goods, insurance and freight charge. The ownership of the good is passed to the
buyer upon delivery of the goods to the carrier.
f. CF (cost and freight) - the buyer agrees only to pay the cost of the goods and the
freight.
Another special consideration in determining the physical goods to be included in the inventory, are
consigned goods, so who owns the consigned goods?
2. Goods in transit - The company’s may sell certain products through consignment, the company
who ships the merchandise to the other company is called the consignor. The company who
receives is the consignee. When the product is sold by the consignee, it remits the revenue less
commission and expenses to the consignor. Goods in consignment remains in the ownership of
the consignor thus, recorded in the inventory of the consignor.
