Goods in transit at year-end purchased FOB shipping point were appropriately recorded in the purchases account but were incorrectly excluded from the ending inventory.What effect will this omission have on the company's assets,liabilities,and retained earnings at year-end?

Question

Quizplus · Accepted Answer

Goods in transit purchased FOB shipping point should be included in the ending inventory because ownership transfers to the buyer when the goods are shipped. Excluding them from ending inventory understates assets (inventory). There's no effect on liabilities. Retained earnings are understated because the cost of goods sold is overstated, reducing net income.

Goods in Transit at Year-End Purchased FOB Shipping Point Were