Received Invoice; Goods Still In Transit


B

Bryan

For one of my accounting courses, there is a case where I have to enter a
month's worth of transactions into Dynamics. I have one that I could enter
either of two ways and am unsure of how it would be handled in practice.

The invoice is received and the goods are being shipped FOB shipping point.
The goods are still in transit and won't arrive until the week after. Date
of the receipt of invoice is December 31 (year end is also December 31.)

I believe the correct way to go about it is to not record the invoice until
the goods are received to uphold the matching principle, as the expense will
be incurred in the same period as the revenue will be earned on these
particular goods. Or should I just expense it in the current year?
 
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P

Paul Thomas, CPA

Bryan said:
For one of my accounting courses, there is a case where I have to enter a
month's worth of transactions into Dynamics. I have one that I could
enter either of two ways and am unsure of how it would be handled in
practice.

The invoice is received and the goods are being shipped FOB shipping
point. The goods are still in transit and won't arrive until the week
after. Date of the receipt of invoice is December 31 (year end is also
December 31.)

That's where your grow blinders and /or let the invoice fall behind some
empty file cabinets or let it slip up under the inc box to be discovered in
January.



I believe the correct way to go about it is to not record the invoice
until the goods are received to uphold the matching principle, as the
expense will be incurred in the same period as the revenue will be earned
on these particular goods. Or should I just expense it in the current
year?

I too, would want to record the invoice when the goods come in. For several
reasons, one being to verify the shipment is in order (it's all there)
before booking the payable. The other would be to have something to match
it to, like an increase in inventory.

But - the true answer is to book it according to company policy.
 
?

!-!

FOB shipping point means that the vendor is no longer responsible,
title has passed to the purchasor - along with the purchasor's
liability to the vendor, so you should record the invoice. Failure to
record the inventory may mean that the goods will not be covered by
the purchasor's insurance in the event of damage/loss in transit,
another reason to record the transaction.

By the way, If the goods are inventory the purchase is an asset, not
an expense, so revenue-expense matching would not be an issue. If the
goods are in fact an expense, you should record the purchase as a
prepaid.

Businesses that deal with similar long-transit issues on a regular
basis often record the goods separately from received goods, in an
account typically named something like "Goods in Transit".
 
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V

Victor Maries

FOB shipping point means the buyer accepts ownership at the seller's place
of business. The goods are part of the buyer's inventory when they are in
transit since ownership has transffered to the buyer.
 

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