You were asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. When you arrive on Thursday, December 30, and find that the inventory procedures have just been started. You spot a railway car on the sidetrack at the unloading door and ask the warehouse superintendent, Buck Rogers, how he plans to inventory the contents of the car. He responds, “We are not going to include the contents in the inventory.”
Later in the day, you ask the bookkeeper for the invoice on the carload and the related freight bill. The invoice lists the various items, prices, and extensions of the goods in the car. You note that the carload was shipped December 24 from Albuquerque, f.o.b. Albuquerque, and that the total invoice price of the goods in the car was $35,300. The freight bill called for a payment of $1,500. Terms were net 30 days. The bookkeeper affirms the fact that this invoice is to be held for recording in January.
- Does your client have a liability that should be recorded at December 31? Discuss.
- For what possible reason(s) might your client wish to postpone recording the transaction?
Just response each posted down below only # 1 to 3.
Hello follow classmates,
I believe that my client has a liability that should be recorded because once the carload was ship at F.O.B Albuquerque, the title shifted to Milwaukee in December and must be recorded. Along with that, they have received an invoice with the 30 days to pay. Delaying recording can cause future issues.
If the client postpones the recording they don’t have to record accounts payable or invenotry. Since this is the end of the year, I would say the client would want to look as attractable as possible by having less liabilities. It also depends on if they are using a perpetual system or a periodic system of inventory.
After reviewing the scenario, and reviewing information provided by the bookkeeper. My client does in fact have a liability that should be recorded at December 31. According to our text, F.o.B. Shipping point, (in this particular situation, f.o.b. Albuquerque, which is the shipping point) the ownership of goods is transferred from the seller to the buyer at the moment it leaves the seller (Kieso, Weygandt, & Warfield, 2016).
A company may want to delay recording this transaction could depend on when the accounting period ends, and the type of system used to account for their inventory. Using the perpetual system, all inventory transactions will be recognized immediately. The periodic system recognizes an inventory purchase at the time of purchase but updates the inventory available at the end of each period (Kieso, Weygandt, & Warfield, 2016).
Hello Professor and class,
After reading more about shipping terms and recording inventory, I understand that my client does have a liability to report at December 31. FOB shipping is a term used when businesses deliver goods. It means that the ownershipof the items being shipped have been transferred to the buyer once they leave possession of the seller. For this reason, my client needs to debit an expense for purchases of $35,300 and credit Accounts Payable, as well as a debit for the Freight bill expense of $1,500 and credit to cash. “Once the goods are at the shipping point, the ownership of the goods and the risk passes to the buyer and should be included in the inventory of the buyer as goods in transit. The buyer now has an obligation to pay for the goods and is responsible for all future expenses”, (Double Entry Bookkeeping, 2018).
One reason a company may want to postpone recording could depend on when the accounting period ends, and the type of system used to account for their inventory. Using the perpetual system, all inventory transactions will be recognized immediately. The periodic system recognizes an inventory purchase at the time of purchase but updates the inventory available at the end of each period.