Oregon Construction Contractors (CCB) Practice Test

Which statement best describes FOB Freight Prepaid?

1. The seller pays shipping, and the buyer can deduct it

2. The buyer pays the shipping charges upfront

3. The seller is not responsible for shipping costs

4. The buyer assumes all risks during transit

The correct answer is: The seller pays shipping, and the buyer can deduct it

The statement that the seller pays shipping, and the buyer can deduct it accurately captures the essence of FOB Freight Prepaid. In this shipping term, "FOB" stands for "Free on Board," meaning that the seller is responsible for the shipping costs to the designated destination. While the seller pays for these shipping charges, the buyer benefits as they can also deduct these costs, making it financially beneficial to the buyer. This term indicates that the seller retains ownership of the goods while they are in transit, and it is their responsibility to cover shipping expenses. Thus, once the goods are shipped and the costs incurred, the buyer is able to account for these costs on their end, often facilitating better cash flow management. The other statements do not accurately reflect the nature of FOB Freight Prepaid. The concept of the buyer paying shipping charges upfront describes a different arrangement, such as FOB Freight Collect. Similarly, when it comes to responsibility for shipping costs, the seller's obligation contradicts the idea of the seller not being responsible. Finally, the assertion that the buyer assumes all risks during transit does not apply here, as responsibility lies primarily with the seller until the goods are officially received by the buyer.