Question

3. a company makes all sales under terms of fob shipping point. the company usually ships to customers roughly a week after receiving orders. for orders received in late december, management has decided that profits are already at an acceptable level and so they have decided to delay shipment until january. under the fob policy when does the company record the sale?

Answer 1

For a company operating under FOB shipping point terms, a sale is recorded when the goods are shipped, not when the order is received. If a company delays shipment, the sale would be recorded when shipping occurs. Additionally, shipping efficiency is important for minimizing costs and optimizing profits.

Step-by-step explanation:

The question pertains to the timing of revenue recognition for a company that operates under FOB shipping point terms. According to these terms, the sale is recorded when the goods leave the seller's shipping dock, as the ownership and responsibility are transferred to the buyer at that point.

Therefore, even if the company receives orders in late December, if management decides to delay shipment until January, the company would record the sale in January when the goods are actually shipped, not when the orders are received.

This practice may be used as a strategy to manage profits for the fiscal year. Delaying shipment and hence, the recognition of revenue, can be done to show less profit in the current year and move the revenue to the next year. However, this should be done considering ethical accounting practices and relevant regulations.

It is also important to note that shipping efficiency is a significant aspect of business operations. Companies aim to minimize shipping delays and costs by optimizing routes and considering factors like congested street networks, jammed freeways, and proximity to uncrowded freeways, rail, or water transport access. These factors play a vital role in the cost-effectiveness of transportation.