In-Transit Ownership
You can choose when the transfer of ownership occurs for items being transferred between locations. Ownership can transfer either at the time of shipping or the time of receipt.
For example, Location A is transferring 10 widgets to Location B. In some cases, you may want Location B to take ownership when the item is received. In other cases, you may want Location B to take ownership as soon as the item is shipped.
Transfer orders use international commercial terms (incoterms) to define transfer of ownership. Incoterms are a standardized three-letter trade term used on transactions related to international commercial procurement practices that communicate the tasks, costs, and risks associated with the transportation and delivery of goods. Incoterms define where the customer takes ownership of the product.
The following are default incoterms:
-
Ex Work (EXW) – Inventory ownership is transferred at the shipping point
-
Delivered at Place (DAP) – Inventory ownership is transferred at the destination point
On a transfer order form under Classifications, choose the appropriate incoterm in the Incoterm field. Be aware that the incoterm you select impacts accounting and inventory information.
When creating a transfer order, you can only select EXW or DAP. After the order status is pending approval or pending fulfillment, you can choose another incoterm.
Select your default setting at Setup > Accounting > Accounting Preferences. On the Order Management subtab in the Default Transfer Order Incoterms field, choose your default setting from the following:
-
Shipping Point (Ex Works)
-
Destination Point (DAP)
The incoterm you choose will populate the incoterm field on transfer orders.
You can create additional incoterms as necessary at Setup > Accounting > Accounting Lists.
Ex Work (EXW) and Closed Periods
When you have enabled the preference to Create and Edit Inventory Transactions Dated in Closed Periods, you cannot select the Ex Work (EXW) incoterm. For details about setting this preference, read General Accounting Preferences.
Additionally, if any transfer order has been entered using the Ex Work (EXW) incoterm then the Create and Edit Inventory Transactions Dated in Closed Periods preference will no longer be available.
Inventory and Accounting Impact of Incoterms
The incoterm you select on a transfer order impacts accounting and inventory information. The sections below elaborate the impacts depending on the incoterm you choose for transfer orders and intercompany transfer orders.
Destination Point (DAP) for Transfer Orders
When Destination Point (DAP) is selected as the transfer order incoterm, the destination location assumes ownership of the goods upon receipt of the item.
In the following example, the unit cost at the source for 7 shipped units is 5 dollars each.
|
Fulfillment |
|
|---|---|
|
CR Asset (Source Location) |
$35 |
|
DR Intransit (Source Location) |
$35 |
|
Receipt |
|
|---|---|
|
DR Asset (Destination) |
$35 |
|
CR Intransit (Source Location) |
$35 |
At the time of item fulfillment, the inventory is still owned by the source location, but it is out of the warehouse.
-
Source Location: On-hand quantity is decreased.
-
Source Location: In-transit quantity is increased. (Inventory is owned by source location.)
-
Destination Location: On-order quantity is increased.
At the time of item receipt, ownership is transferred to the destination location.
-
Destination Location: On-hand quantity is increased.
-
Source Location: In-transit quantity is decreased.
-
Destination Location: On-order quantity is decreased.
Destination Point (DAP) for Intercompany Transfer Orders
When Destination Point (DAP) is selected as the intercompany transfer order incoterm, the destination location assumes ownership of the goods upon receipt of items.
In the following example, items are transferred from the US ($USD) to Canada ($CAD) and the incoterm is set to Destination Point (DAP).
The unit cost at the source is $35 USD.
|
Fulfillment (Source Subsidiary) |
Amount |
|---|---|
|
CR Asset |
$35 USD |
|
DR Intransit |
$35 USD |
|
Receipt (Source Subsidiary) |
Amount |
|---|---|
|
DR Intercompany AP |
$35 USD |
|
CR Intransit |
$35 USD |
|
Receipt (Destination Subsidiary) |
Amount |
|---|---|
|
CR Intercompany AR |
$35 USD ($40.45 CAD) |
|
DR Asset |
$35 USD ($40.45 CAD) |
At the time of item fulfillment, the inventory is still owned by the source location, but it is out of the warehouse.
-
Source Location: On-hand quantity is decreased.
-
Source Location: In-transit quantity is increased. (Inventory is owned by source location.)
-
Destination Location: On-order quantity is increased.
At the time of item receipt, ownership is transferred ownership is transferred to the destination location.
-
Destination Location: On-hand quantity is increased.
-
Source Location: In-transit quantity is decreased.
-
Destination Location: On-order quantity is decreased.
Shipping Point (EXW) for Transfer Orders
When Shipping Point (EXW) is selected as the transfer order incoterm, the destination location assumes ownership of goods upon item fulfillment.
|
Fulfillment |
Amount |
|---|---|
|
CR Asset (Source Location) |
$35 |
|
DR Intransit (Destination Location) |
$35 |
|
Receipt |
Amount |
|---|---|
|
DR Asset (Destination Location) |
$35 |
|
CR Intransit (Destination Location) |
$35 |
As in the example below, you may ship items from your East Coast location to your West Coast location.
At the time of item fulfillment, the inventory is still owned by the source location, but it is out of the warehouse. Ownership is transferred at the shipping point.
-
Source Location: On-hand quantity is decreased.
-
Destination Location: In-transit quantity is increased. (Inventory is owned by the destination location)
-
Destination Location: On-order quantity is increased.
At the time of item receipt, the in-transit quantity is reduced and on-hand quantity is increased.
-
Destination Location: On-hand quantity is increased.
-
Destination Location : In-transit quantity is decreased.
-
Destination Location: On-order quantity is decreased.
Shipping Point (EXW) for Intercompany Transfer Orders
When Shipping Point (EXW) is selected as the transfer order incoterm, the destination location assumes ownership of goods upon item fulfillment.
In the following example, items are transferred from the US ($USD) to Canada ($CAD) and the incoterm is set to Shipping Point (EXW)
|
Fulfillment (Source Subsidiary) |
Amount |
|---|---|
|
Note:
The exchange rate is based on the spot rate |
|
|
CR Asset |
$35 USD |
|
DR Intercompany AP |
$35 USD |
|
Fulfillment (Destination Subsidiary) |
Amount |
|---|---|
|
CR Intercompany AR |
$40.45 CAD ($35 USD) |
|
DR Intransit |
$40.45 CAD ($35 USD) |
The unit cost at the source location is $35 USD.
|
Item Receipt (Destination Subsidiary) |
Amount |
|---|---|
|
DR Asset |
$40.45 CAD($35 USD) |
|
CR Intransit |
$40.45 CAD($35 USD) |
Related Topics
- Multi-Location Inventory
- Transferring Inventory
- Transfer Order Preferences
- Entering a Transfer Order
- Approving Transfer Orders
- Fulfilling Transfer Orders
- Pick, Pack, and Ship with Transfer Orders
- Receiving Transfer Orders
- Intercompany Inventory Transfers - Non-Arm's Length
- Closing Transfer Orders
- Inventory Replenishment and Withdrawal