Accounting for freight charges requires precise documentation. FOB stands for “freight on board,” and carries a designation of shipping point or destination. FOB shipping point indicates the buyer is responsible for paying freight charges. FOB destination indicates the seller is responsible for paying freight charges. Each journal entry to record these transactions is different, depending on the buyer or seller and item under delivery. In some cases freight is an expense, while in other cases it is an asset.
Identify who is paying the freight charges. If the transaction takes place at the seller’s place of business, it is FOB shipping point. If the sale completes at the buyer’s location, it is FOB destination.
Review the paperwork associated with the FOB charges. Document the amount paid for freight and locate the general ledger accounts to record the dollar amounts.
Write the journal entry, creating a debit and credit. The buyer will debit freight-in and credit cash or accounts payable, depending on the payment method. Sellers will debit delivery expense; the credit remains the same.
Enter the information from the journal entry into the general ledger. Review the information a final time to ensure the account numbers and dollar amounts are correct.