Dictionary / F.O.B
What does F.O.B mean in accounting?
Quick definition
GeneralFree on board. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
Walnut slabs billed FOB origin Toledo
You run a cabinet shop. On February 11, a hardwood supplier invoices $3,460 FOB origin Toledo for a crate of walnut slabs, so the named point is their dock and title plus risk pass to you once the carrier loads the crate. Enter a bill dated February 11 to that supplier, coded to inventory. The carrier bills you $210 collect freight; code that to freight-in, not onto that supplier's bill. If the crate is damaged on the highway, the claim is yours.
A lodge table sold FOB destination
You run a furniture shop in Bozeman. On November 6 you invoice a lodge $5,920 FOB destination Kalispell for a dining table. You still own the crate until it is signed for in Kalispell, so you pay the carrier $340 and code that to freight-out, not as an extra line on the customer invoice. Do not record the sale or drop inventory on November 6; wait until delivery. If the crate is crushed in transit, you replace it.
Why it matters
FOB (free on board) is a shipping term, not a ledger account: the seller delivers the goods on board at a named point, and risk plus freight after that point follow what the named point says. You will not see this most months unless you buy or sell goods that ship; it shows up on a purchase order, vendor invoice, or sales quote as FOB origin or FOB destination. Treat FOB origin as title and risk passing at the seller's dock, so you pay the carrier and you own the shipment in transit. Treat FOB destination as the seller still owning the shipment until it arrives, so they pay freight and you wait to record the purchase or sale. Mix it with FOB price and you treat a location quote as the shipping rule; mix it with CIF and you expect a domestic truck to include insurance and ocean freight that were never in the deal.
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What is F.O.B in bookkeeping?
Free on board.
When should I use F.O.B?
Use F.O.B when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with F.O.B?
F.O.B is used for f.o.b entries, while F.O.B. Price covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.