Period Cost

Period costs are expenses that are not inventor able. These costs are charged against sales revenue in the period in which the revenue is earned, also called period expense. Period costs are charged off immediately as there is no relationship between the cost and the revenue. The period costs are not a part of the manufacturing process. The period costs are associated with the selling function of the business. The period costs are associated with the non manufacturing expenses as stated by GAAP.

The selling and administrative expenses incurred during a period are identified in the accounting period are charged against sales revenue in the same period. Examples of period costs are depreciation, interest, rent, and other such costs. These costs are associated with the passage of time and not with the units of the output. The period costs are treated as fixed costs.

The period costs are expensed on the Income Statement in the period in which they are incurred. Period costs use the rules of accrual accounting, included in the financial accounting. Period costs are not included as a part of cost either in purchased or manufactured goods. Sales commissions and office rent are examples of period costs. The period costs are treated as expenses in the accounting period. They should be recorded when

• They best match with the revenues
• When they expire
• In the current accounting period

In contrast to period costs, the product costs are directly and indirectly identifiable with the product. The product costs include the costs such as direct materials, direct labor and factory overhead. The product costs provide benefit once the goods are sold and they are inventories when the product is completed. This is known as cost of goods sold.

Questions

• What are period costs?
• What are the examples of period costs?
• How does product cost differ from product cost?