Next video:
Loading the player...

Free On Board is a historical legal term referencing the passing of title and liability between buyers and sellers of goods. Free On Board originally referenced goods transferred by ship. Since it is a legal term, and has changed in meaning over the years, some countries may have a different legal definition for it, so you'll want to consult a local attorney before using it in a contract or transaction.

Free On Board is often abbreviated as FOB.  Usually, a location follows the FOB designation.  For example, you might see FOB shipping point, also referred to as FOB origin, or FOB destination. The location is the key to how FOB is used.  The location designation is where ownership is transferred.  It’s also where responsibility for shipping costs shift from the seller to the buyer.  This is the point at which the buyer assumes responsibility to insure the goods, and suffers any damages should an accident happen while the goods are transported to another location.  

Also keep in mind that the location is where title transfers occur, meaning this is where the goods become an asset on the buyer’s balance sheet. This becomes really important (at least to accountants) during cut off periods.

For example, say Hawker Company in New York City sold one million golf balls to Slammer, Inc., in Los Angeles.  The sales price was five cents per golf ball. The sale took place on December 29th.  Hawker shipped the golf balls on December 30th and Slammer received them on January 3rd. 

Slammer’s accountants are closing the books for the year end, and need to determine if the golf balls should be included in their inventory.  If the terms of the sale are FOB shipping point New York, then title to the golf balls passes to Slammer on December 30 (the shipping date), and the inventory assets account in Slammer’s books will be fifty thousand dollars higher. If the terms are FOB destination (which was Los Angeles) then Slammer’s year-end inventory assets account will not include the fifty thousand dollars in golf balls, because Slammer did not get title to the goods (and thus did not own them) until January 3rd of the next year.

  1. No results found.
Related Articles
  1. Investing

    Explaining Cost, Insurance and Freight (CIF)

    Cost, Insurance and Freight, or CIF, is a trade term that means the seller must pay the costs needed to transport goods to a port of destination.
  2. Investing

    The Future Outlook of the Golf Industry

    The popularity of golf peaked in 2003. To regain popularity and survive, the industry is adapting to appeal to a younger generation of players.
  3. Insights

    Nominal vs. Real GDP

    GDP stands for gross domestic product and is the measure of the total economic output of the goods and services of a country.
  4. Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...
  5. Investing

    Major Companies That Lose Money On Shipping (AMZN)

    We look at some of the big companies in the home delivery business that have high shipping costs and how they mitigate this.
  6. Managing Wealth

    10 Golf Tips To Help Investors Tee Off

    There are a lot of similarities between golf and investing. Find out how to keep your game out of the rough.
  7. Insights

    First Olympic Golf in a Century; But is the Industry Dying?

    Golf is once again an Olympic sport, but its future remains uncertain.
  8. Managing Wealth

    When It Pays to Join a Golf Club

    If you play enough golf, it might just be time to consider joining a golf club.
  9. Investing

    Understanding Delivery Duty Unpaid (DDU)

    Delivery duty unpaid (DDU) is a legal and international shipping term.
  10. Investing

    What does Free Carrier Mean?

    Free carrier is a trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. Costs for transportation and risk of loss transfer ...
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center