HULAHAKA

The sales agreement should indicate whether the seller or the buyer is to pay the cost of transporting the goods to the buyer’s place of business. When a common carrier such as a railroad, trucking company, or airline is used, the transportation company prepares a freight bill (often called a bill of lading) in accordance with the sales agreement. Freight terms are expressed as either FOB shipping point or FOB destination. The letters FOB mean free on board. Thus, FOB shipping point means that goods are placed free on board the carrier by the seller, and the buyer pays the freight costs. Conversely, FOB destination means that the goods are placed free on board at the buyer’s place of business, and the seller pays the freight. For example, the sales invoice in Illustration 5-3 on page 183 indicates that freight is FOB shipping point. Thus, the buyer (Chelsea Video) pays the freight charges.
When the purchaser directly incurs the freight costs, the account Freight-in (or Transportation-in) is debited. For example, if upon delivery of the goods on May 6, Chelsea Video pays Acme Freight Company $150 for freight charges

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