Zeta Automotive: When to Record Account Payable

Zeta Automotive Ordered Transmissions from Alpha Transmission Company

Zeta Automotive ordered transmissions from the Alpha Transmission Company on May 7, 1990. The terms of sale were FOB destination. The Alpha Company shipped the transmissions on May 22, 1990, and Zeta Automotive received them on June 1, 1990.

When Should Zeta Automotive Record the Account Payable?

Answer:

June 1, 1990

Explanation:

FOB Destination stands for free on board destination.

Simply, it means that the goods in transit will be considered as the seller's responsibility until reached the buyer's destination.

Seller will bear all the liability until the order is delivered at buyer's destination.

Hence, Zeta Automotive (Buyer) will record the account payable only when the order is received on June 1, 1990.

Final Answer:

Zeta Automotive should record the account payable when they received the transmissions on June 1, 1990, in accordance with FOB destination terms.

Explanation:

Zeta Automotive should record the account payable for the transmissions ordered from Alpha Transmission Company when they receive the goods, which is in accordance with the terms of FOB destination. In this case, since Zeta Automotive received the transmissions on June 1, 1990, they should record the account payable on this date. The term FOB destination indicates that the seller retains ownership and responsibility for the goods until they are delivered to the buyer's location, which also indicates when the buyer should recognize the liability.