Inventory in Transit
This article covers meaning & overview of Inventory in Transit from operations perspective.
What is Inventory in Transit?
Inventory in transit refers to the goods or supplies that has already been shipped from the supplier’s warehouse but not yet delivered to the buyer. It is used to account whether the buyer or seller has the possession and who is responsible for the freight charges for the same.
Either the seller or the buyer has to account for the inventory in transit depending on the shipping terms.
For Example: FOB shipping point: It means that the ownership is transferred to the buyer as soon as the seller ships the items from his warehouse.
FOB destination point: It means that the ownership is transferred to the buyer upon the final delivery of the goods.
This can be a cause of problem if the buyer does not have system in place to record the inventory before the receipt. Under FOB shipping point agreement, the supplier will receive the transaction at the point of shipment whereas the receiving company will only record it upon the receipt. Thus, no one actually records the inventory while it is in transit.
It is also referred to as transit inventory or stock in transit.
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