 In this discussion we will discuss the discussion question of what does FOB mean and how is it used? So when we hear the term FOB in terms of the shipping it's going to mean free on board. Now free on board is not the term that we really need to understand when we see FOB because it's usually in place when we see it in terms of FOB shipping point or FOB destination. So really the key component to this would be the FOB and then the shipping point or the destination point and it's going to determine when the inventory is going to change hands meaning who is going to be responsible for the inventory at what point in time. So if we're talking about FOB shipping point that would mean that if we had the seller here and the buyer here and the shipment point of shipment was here to get it over to here then we're saying that the shipping point it's going to transfer at that point in time from the seller to the buyer at the point in time of shipment and it's going to be really important if we're talking about things like liability in terms of when the shipment is going to be applied here and it can also determine who is probably paying the cost of the shipment. Obviously if the transfer has happened at this point in time then it's likely that the buyer is paying for the cost at the shipping point and therefore it's going to need to include that cost in the cost of the inventory. On the other hand if we're talking about FOB destination that means that we're exchanging the inventory at the point in time that it reaches the destination it reaches basically we think of the warehouse or something on the other side of things so we have the seller over here is selling something and it's not going to change hands in terms of us recording it until it reaches the destination and again that's going to be important because this point in time of the shipment process it's still in the seller's books it's on the seller's books and typically they have responsibility for it if something happened to it along the way it would be the responsibility most likely of the seller in that case rather than the buyer and then when we get it over here on this side it's most likely the fact that we didn't we possibly did not pay for the shipping most likely in that in that case and therefore I wouldn't have the issue of including it in terms of the inventory cost. So when we see FOB if we see an essay question related to it we want to remember it's free on board but more than just knowing that component of it you want to be able to expand on that and say you know what does it mean in terms of FOB shipping point versus FOB destination why is that important and be able to explain the transfer of the inventory and the issue of the costs of shipping and or loss or insurance type of loss of the inventory who's be responsible for it at during the shipping process are some key components related to this term.