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Received Invoice; Goods Still In Transit

For one of my accounting courses, there is a case where I have to enter a month's worth of transactions into Dynamics. I have one that I could enter either of two ways and am unsure of how it would be handled in practice.

The invoice is received and the goods are being shipped FOB shipping point. The goods are still in transit and won't arrive until the week after. Date of the receipt of invoice is December 31 (year end is also December 31.)

I believe the correct way to go about it is to not record the invoice until the goods are received to uphold the matching principle, as the expense will be incurred in the same period as the revenue will be earned on these particular goods. Or should I just expense it in the current year?

Reply to
Bryan
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"Bryan" wrote

That's where your grow blinders and /or let the invoice fall behind some empty file cabinets or let it slip up under the inc box to be discovered in January.

I too, would want to record the invoice when the goods come in. For several reasons, one being to verify the shipment is in order (it's all there) before booking the payable. The other would be to have something to match it to, like an increase in inventory.

But - the true answer is to book it according to company policy.

Reply to
Paul Thomas, CPA

FOB shipping point means that the vendor is no longer responsible, title has passed to the purchasor - along with the purchasor's liability to the vendor, so you should record the invoice. Failure to record the inventory may mean that the goods will not be covered by the purchasor's insurance in the event of damage/loss in transit, another reason to record the transaction.

By the way, If the goods are inventory the purchase is an asset, not an expense, so revenue-expense matching would not be an issue. If the goods are in fact an expense, you should record the purchase as a prepaid.

Businesses that deal with similar long-transit issues on a regular basis often record the goods separately from received goods, in an account typically named something like "Goods in Transit".

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!-!

Reply to
Victor Maries

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