Free On Board



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.

Related Articles
  1. Markets

    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. Markets

    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. Markets

    Golf Industry Ripe For Consolidation

    Golf is coming out of a multi-year slump with a bright outlook.
  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. Markets

    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.
  6. Markets

    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.
  7. Personal Finance

    7 Tips For Avoiding Shipping Costs When Shopping Online

    Before clicking on that purchase, make sure you're getting the best deal possible.
  8. Personal Finance

    Prioritizing Debt

    Debt affects your finances and your life. We show you how to free yourself from this financial ball and chain.
  9. Markets

    Understanding Delivery Duty Unpaid (DDU)

    Delivery duty unpaid (DDU) is a legal and international shipping term.
  10. 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.
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center