Period cost

Definition

Period costs are expenses that are not directly tied to production and are expensed in the period they are incurred. Examples include administrative salaries, rent, and utilities.

5 Must Know Facts For Your Next Test

1. Period costs are expensed in the period they occur and do not become part of inventory costs.
2. They include selling, general, and administrative expenses (SG&A).
3. Period costs differ from product costs, which are directly tied to the manufacturing process.
4. In financial statements, period costs appear on the income statement as expenses.
5. Understanding period costs is crucial for accurately assessing a company's profitability.

Review Questions

• How do period costs differ from product costs?
• Where do period costs appear in financial statements?
• Why is it important to distinguish between period costs and product costs?

Related terms

Product Costs: Costs that are directly associated with the production of goods or services.

Direct Costs: Expenses that can be directly traced to a specific cost object such as a product or job.

Indirect Costs: Costs that cannot be directly traced to a single cost object but support multiple areas or jobs.