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Perpetual Inventory - Freight Costs quiz

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  • What are freight costs in accounting?
    Freight costs are delivery expenses paid to transport goods and are recorded based on who is responsible for payment according to delivery terms.
  • Who pays the shipping cost under F.O.B. Shipping Point?
    The buyer pays the shipping cost under F.O.B. Shipping Point because ownership transfers to the buyer at the shipping point.
  • How is the shipping cost recorded under F.O.B. Shipping Point?
    The shipping cost is capitalized to the inventory account, increasing its value as part of the asset.
  • What does 'capitalize' mean in the context of inventory?
    To capitalize means to record a cost as an asset, adding it to the inventory value rather than expensing it immediately.
  • What journal entry does the buyer make for inventory and shipping under F.O.B. Shipping Point?
    The buyer debits inventory for the cost of goods and shipping, and credits accounts payable for the total amount owed.
  • How does the shipping cost affect the per-unit inventory value under F.O.B. Shipping Point?
    The shipping cost increases the per-unit inventory value because it is spread across all units received.
  • When does ownership of goods transfer under F.O.B. Shipping Point?
    Ownership transfers to the buyer at the shipping point, before the goods are loaded onto the delivery truck.
  • Who pays the shipping cost under F.O.B. Destination?
    The seller pays the shipping cost under F.O.B. Destination because ownership transfers to the buyer at the destination.
  • How is the shipping cost recorded under F.O.B. Destination?
    The shipping cost is recorded as a selling expense by the seller, not as part of inventory.
  • Does the buyer record delivery expenses under F.O.B. Destination?
    No, the buyer does not record delivery expenses under F.O.B. Destination because the seller pays for shipping.
  • What journal entry does the buyer make for inventory under F.O.B. Destination?
    The buyer debits inventory for the cost of goods only and credits accounts payable or cash for the same amount.
  • What journal entry does the seller make for delivery expenses under F.O.B. Destination?
    The seller debits selling expense for the delivery cost and credits accounts payable or cash.
  • How do freight costs impact the balance sheet under F.O.B. Shipping Point?
    Freight costs increase the inventory asset and the accounts payable liability on the balance sheet.
  • How do freight costs impact the balance sheet under F.O.B. Destination for the buyer?
    Freight costs do not impact the buyer's balance sheet under F.O.B. Destination; only the cost of goods is recorded.
  • What is the main difference between F.O.B. Shipping Point and F.O.B. Destination regarding freight costs?
    Under F.O.B. Shipping Point, the buyer pays and capitalizes freight costs; under F.O.B. Destination, the seller pays and records them as selling expenses.