0:02 in today's video we're going to discuss
0:07 how to account for freight costs when a
0:09 company is purchasing merchandise for resale
0:11 resale
0:13 in both the perpetual
0:19 and periodic inventory methods
0:21 but before I get into that I want to
0:23 mention that I believe something great
0:26 is going to happen for you today
0:28 and now back to the video
0:30 if you're someone who
0:34 keeps confusing perpetual and periodic
0:36 inventory methods
0:39 give this video a thumbs up that way
0:41 I'll know to make more videos like this
0:44 to help you sort it out thank you in
0:47 this video we're going to discuss how to
0:51 journalize the freight costs for the
0:57 merchandise being shipped to the company
0:59 I did a prior video
1:02 showing how to account for the actual
1:05 purchases of the merchandise for
1:08 inventory if you missed that video I've
1:11 linked it up here for you
1:13 in this video we're going to talk about
1:17 the freight costs to deliver that
1:21 merchandise to the company that will
1:24 resell it and here we're going to talk
1:28 about fob shipping point fob stands for
1:32 free on board shipping point means that
1:36 it changes hands the legal ownership of
1:39 the of the merchandise changes at the
1:42 time it is shipped from the seller to
1:46 the buyer and the buyer is responsible
1:49 for the freight costs so that is why the
1:50 company that we're
1:53 accounting for here they're they're the
1:56 buyer they're buying the merchandise for
1:58 reselling to somebody else and they
2:03 incur freight costs of 150 and they're
2:04 going to pay
2:14 in the Perpetual inventory system
2:17 we need to account for that cost and
2:20 we're going to place that cost in inventory
2:22 inventory
2:24 we're just going to add that cost to the
2:27 cost of the inventory and ultimately it
2:30 will then flow through to the cost of
2:32 goods sold
2:34 when that inventory is sold so we're
2:36 going to debit the inventory for 150
2:39 dollars so we're actually
2:41 capitalizing it as an asset that
2:44 inventory that shipping costs are going
2:47 to be debited to the asset of inventory
2:49 and we're going to credit our cash
2:51 account because the cash is going down
2:54 by the hundred and fifty dollars that is
2:56 being paid
3:00 you have now properly accounted for the
3:01 freight costs
3:05 for fob shipping point under the
3:14 now let's look at the periodic inventory
3:18 method we're going to use the same 150 of
3:19 of
3:23 freight costs but in the case of
3:26 periodic inventory method we're going to
3:30 place this freight cost into a temporary
3:37 in
3:40 I'm going to go ahead and debit the 150 dollars
3:41 dollars
3:45 and just like in the Perpetual method
3:47 the periodic method we're going to
3:50 credit the cash because the cache has
3:52 gone out to
3:54 pay the carrier
3:57 you have now properly accounted for the
3:59 freight costs
4:02 for fob shipping point
4:05 in the periodic inventory method
4:07 now you're knowing a little bit more
4:09 about it but there's much more to know
4:12 so I'm more information such as this
4:16 sign up for my free email updates under
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