How to Record Inventory in Transit Under FOB Shipping Point Terms
Recognizing inventory that is legally owned by the company while still in transit from the supplier.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Inventory in Transit | Asset (+) | 5,000.00 | - |
| Accounts Payable | Liability (+) | - | 5,000.00 |
💡 Accountant's Note
If shipping terms are 'FOB Shipping Point', the buyer owns the goods from the moment they leave the seller's warehouse — even if they haven't arrived yet.
Practitioner & Systems Framework
💻 ERP Architecture
Set up an 'Inventory in Transit' sub-account to track goods that have been invoiced but not yet received. When the goods arrive and are physically received, the in-transit balance moves to regular Merchandise Inventory. At period-end, review the in-transit account for any items that should have been received and investigate. Never leave significant balances in transit accounts beyond 30 days without explanation.
⚠️ Audit Flags
Year-end cut-off testing is critical — auditors confirm that goods shipped by suppliers in the last days before year-end (FOB Shipping) are included in both inventory and payables. Missing these items understates both assets and liabilities. Conversely, goods shipped after year-end that were recorded as received must be reversed.
📄 Required Documentation
Supplier shipping documentation (bill of lading confirming FOB shipping point), purchase order with shipping terms, in-transit tracking record, goods received note when items arrive, and year-end cut-off analysis.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.