Ask Me Help Desk - FOB shipping point?

Quote:

Purchased merchandise on account from Salem Co. terms 2/10, n/30, FOB shipping point, $40,000.
Would I journalize it as
Merchandise Inventory 40,000
Accounts Payable 40,000

This is correct. You titled the post "FOB shipping point," as though that were the questionable part. FOB means free on board, and it's free to whoever it says, meaning the other party is responsible for paying it. So FOB shipping point means free at the shipper's, so the buyer pays the shipping. FOB destination means it's free at the destination point (buyer), so the seller pays. i.e. the place who pays is the exact opposite of what it says.

In this case, the buyer will be responsible, but there isn't anything in this transaction that mentions them paying the shipping. That would end up being an entirely different transaction because they would pay the shipper direct and it wouldn't be part of this invoice from Salem Co.

Quote:

I also have another one..
Sold merchandise on account to Belaire Co. terms 2/10, n/30, FOB shipping point, $25,000. The cost of the merchandise sold was $15,000..
Would it be journalized as:
Accounts Receivable 25,000
Sales 25,000
Cost of Merchandise sold 15,000
Merchandise Inventory 15,000
I'm confused about the 2/10 and the n/30 and the whole shipping point...

This is also correct. Since the buyer is responsible for shipping, and you are the seller on this transaction, you don't need to worry about it.

The 2/10, n/30 means 2% discount given if paid within 10 days. Otherwise the whole thing is due is 30 days with no discount. The "n" stands for net, which actually means the whole amount. (It's the only instance I know of where net means the gross.) Since the discount doesn't apply unless your customer pays within 10 days, you can't do anything about it until they pay and you see what they do. It's not relevant at the time of the sale, so don't worry about that part either. You can worry about it when the customer pays later. ;)