Final answer:
Including goods in transit f.o.b. shipping point in purchases but not ending inventory in a periodic inventory system results in understated net income due to an overstatement of the COGS.
Step-by-step explanation:
If a company using a periodic inventory system includes goods in transit with f.o.b. shipping point in purchases but not in ending inventory, it will result in overstated purchases and cost of goods sold (COGS). Since the goods are legally owned by the company once they leave the shipping point, they should be accounted for in the inventory. If they are not included in the ending inventory, COGS will be incorrectly high, meaning net income will be understated. The correct accounting treatment would record the ownership of the goods in both purchases and ending inventory to accurately reflect the cost and value of inventory on hand.
Final answer in two line explanation in 200 words: If goods in transit f.o.b. shipping point are included in purchases but not ending inventory under a periodic inventory system, net income is understated because COGS is overstated, which leads to lower reported profits.