Chapter 5: Purchase Considerations For Merchandising Businesses
- If goods are sold F.O.B. shipping point, the purchaser is responsible for paying freight costs incurred in transporting the merchandise from the point of shipment to its destination. Freight cost incurred by a purchaser is called freight-in, and is added to purchases in calculating net purchases:
- If goods are sold F.O.B. destination, the seller is responsible for costs incurred in moving the goods to their desired destination. Freight cost incurred by the seller is called freight-out, and is reported as a selling expense which is subtracted from gross profit in calculating net income.