Question Regarding FOB Shipping Point Freight Costs

[Tim8705]

Hello,

I was having a discussion with some fellow accountants regarding the proper accruals to be made when dealing with FOB Shipping Point freight costs. Let me explain the situation.

We order a material from Brazil that takes about 2 weeks from ship date to arrive in the US. Our terms are that we take ownership of the material as soon as it ships. The first leg of freight is from Brazil to a port in New Orleans.

Up until this point, we are all in agreement. Once the ship sets sail, we need to add the material into our inventory via an accrual. We include the cost of the freight to get the material to New Orleans.

However, we incur additional loading/unloading costs and freight costs to get the material from New Orleans to our facility. Should these materials be accrued for at the time of shipping from Brazil? Or at the time they are incurred?

I can really see both sides of the argument. One, the cost has not been incurred so it should not be accrued for. But I do also remember from my schooling that the material should be placed into inventory as delivered, and it is not fully delivered until the final freight leg costs are included.


Thank you so much for any help anyone could provide in settling our issue

 

[kirby]

first - You guys have WAY too much time on your hands

second - the liability for the New Orleans work should be accrued AFTER the work is performed cause now you owe somebody for the work and before they do the work you do not owe them a dime

 

[Tim8705]

Thanks for the quick reply Kirby!

And yes... I do have way too much time on my hands