What Does FOB Mean in Freight?

FOB stands for freight on board.

The acronym FOB has two meanings, "freight on board" and "free on board." Both are accounting terms that hold a lot of meaning for those shipping items as one designates payment arrangements and the other designates the point one becomes responsible for the shipment.

Free On Board

The term "free on board" relates to the shipping of merchandise from the supplier to the receiver. The designation means that the costs of the shipping and handling of any goods are included in the price paid.

Freight On Board Shipping Point

The FOB term in freight and shipping is more readily understood as "freight on board," an accounting term designating the point at which the ownership of materials being shipped passes to the receiver. A warehouse that orders $10,000 in inventory from a supplier has to enter a $10,000 entry into their accounting books. FOB shipping point means that the ownership of the inventory passes to the warehouse at the point the supplier ships the inventory to them. The warehouse accepts ownership and makes the entry prior to receiving the inventory.

Freight On Board Destination

"FOB destination" means that the transfer of ownership occurs at the point the inventory is delivered to the receiver. The entry of $10,000 of inventory does not occur until the truck arrives and the inventory is confirmed and counted. In the same way, the supplier must keep the inventory on their accounting books until the warehouse receives them.

References

• Financial Dictionary: Freight On Board: Financial Definition
• Intermediate Accounting: Wiley Press: Donald Kieso, Jerry J Weygandt, Terry D. Warfield; Page 373