However, we will discuss both systems in-depth later in the semester. Payable See Exhibit 5.3 for an example of a Purchase Invoice. The term FOB means Free on Board and governs when legal title passes from seller to buyer and who pays for transportation. The buyer is responsible for the costs. The seller pays the costs.
COGS is the single largest expense in a retail organisation.
It is not an account, but is a subtotal. The above journal entries ensure the correct balance is in the Inventory Account at year end. Sometimes a Trading Account is used to determine the Gross Profit.