Goods in transit can be easily explained as a product, merchandise or goods that have departed its original location and are in the process of reaching its new destination. In other words, the seller has shipped the items to the buyer but the shipment is still en route.

Ownership of goods in transit typically remains with the seller until the goods reach their point of destination. This is known as F.O.B. destination and ownership of the goods does not transfer until the items reach their destination. At which case, the seller would be responsible for shipping and insurance. If the items are paid for by the buyer up front, they will usually want insured shipping which basically insures the goods they have purchased should they be lost or damaged in transit.

If the items are damaged in transit, the buyer could easily say the seller sold them a defective product. On the other hand the seller could say the buyer holds all responsibility of the product because it is now in their possession. Insured shipping protects both parties.

Goods in transit is not only reserved for large corporations making daily, weekly or monthly shipments of large quantities; it also applies to consumers that order from a company as well as small business owners that ship their products out. Goods in transit apply to any form of shipment where one party is expecting a delivery of goods.

As related to inventory, goods in transit means that while the goods are in the process of reaching their destination, neither the buyer nor the seller hold the goods in their inventory. Although the ownership of goods in transit remains with the seller, it is not longer considered in their inventory.

The seller has released the product from their inventory upon completion of the order and is not required to “keep it on their books” any longer. Should they keep it on their books until the buyer receives it then they are responsible for paying taxes on those goods. Whereas, the buyer has not received the goods and are not required to include in their inventory until the date they receive the items in hand. If they did, they too would be responsible for taxes on the goods and most business owners don’t want that responsibility until goods are in hand.

Leave these details to your accounting department they’ll know how goods in transit affect your inventory.