Question

Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiv. ing the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December. Requirements 1. Under Dobbs's FOB policy, when should the company record a sale? 2. Do you approve or disapprove of Dobbs's manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Dobbs's practice.)

Answer 1

1. FOB is a term that stands for 'free on board'. In FOB terms of shipping sale is recorded when the goods leave sellers warehouse.

2. Yes I approve, FOB is a better way because customer can choose the cost of shipping, route of shipping, time etc which gives them a better control over the goods. So the responsibility of goods is transferred when it leaves warehouse and it's is reasonable to record the sale at that point.