LO 6.5 Which two accounts are used to recognize shipping charges for a buyer, assuming the buyer purchases with cash and the terms are FOB Shipping Point?Choose one answer from the options below.A. delivery expense, cashB. merchandise inventory, cashC. merchandise inventory, accounts payableD. The buyer does not record anything for shipping since it is FOB Shipping Point.BackNext
Question
LO 6.5 Which two accounts are used to recognize shipping charges for a buyer, assuming the buyer purchases with cash and the terms are FOB Shipping Point?Choose one answer from the options below.A. delivery expense, cashB. merchandise inventory, cashC. merchandise inventory, accounts payableD. The buyer does not record anything for shipping since it is FOB Shipping Point.BackNext
Solution
The correct answer is B. Merchandise Inventory, Cash.
Here's why:
FOB Shipping Point means that the buyer takes ownership of the goods as soon as they leave the seller's premises. Therefore, the buyer is responsible for the shipping costs.
Step 1: The buyer recognizes the cost of the inventory purchased. This is done by debiting (increasing) the Merchandise Inventory account.
Step 2: The buyer also recognizes the shipping cost. This is also done by debiting the Merchandise Inventory account, because the shipping cost is considered part of the cost of the inventory.
Step 3: The buyer pays for the inventory and the shipping cost with cash. This is done by crediting (decreasing) the Cash account.
So, the two accounts used to recognize shipping charges for a buyer (assuming the buyer purchases with cash and the terms are FOB Shipping Point) are Merchandise Inventory and Cash.
Similar Questions
The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements below.Multiple select question.Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business.When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges.When the shipping costs are the responsibility of the seller, then the Merchandise Inventory account is debited.Terms FOB shipping point means the seller of the goods is responsible for freight charges.Terms FOB destination means that the seller is responsible for shipping costs.Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination.
LO 6.3 Which of the following accounts are used when recording a purchase?Choose one answer from the options below.A. cash, merchandise inventoryB. accounts payable, merchandise inventoryC. A or BD. cash, accounts payable
Under which freight terms is the seller responsible for the shipping charges?Multiple ChoiceFOB Shipping PointFOB DestinationBoth FOB Shipping Point and FOB DestinationNeither FOB Shipping Point nor FOB Destination PrevQuestion 1 linked to 2 and 3 of 6 Total1 2 3 of 6Visit question map
In FOB Shipping Point the buyer is responsible for paying the freight costs incurred in transporting the merchandise from the point of shipment to its destination.Group of answer choicesNo answer text provided.No answer text provided.TrueFalse
LO 6.4 Which of the following accounts are used when recording the sales entry of a sale on credit?Choose one answer from the options below.A. merchandise inventory, cashB. accounts receivable, merchandise inventoryC. accounts receivable, salesD. sales, cost of goods sold
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