![]() ![]() Terms Similar to Period CostsĪ period cost is also known as a period expense. A period cost is charged to expense on the income statement as soon as it is incurred. Once the inventory is sold or otherwise disposed of, it is charged to the cost of goods sold on the income statement. A product cost is initially recorded as inventory, which is stated on the balance sheet. ![]() A product cost is incurred during the manufacture of a product, while a period cost is usually incurred over a period of time, irrespective of any manufacturing activity. Product CostsĮvery cost incurred by a business can be classified as either a period cost or a product cost. If the entire use to which a cost can be put is consumed in the current accounting period (such as rent or utilities) it is probably a period cost, whereas if its use is linked to a product or is spread over multiple periods, it is probably not a period cost. Finally, costs included in fixed assets, such as purchased assets and capitalized interest, are not considered to be period costs. Also, costs included in inventory, such as direct labor, direct materials, and manufacturing overhead, are not classified as period costs. Items that are not period costs are those costs included in prepaid expenses, such as prepaid rent. The preceding list of period costs should make it clear that most of the administrative costs of a business can be considered period costs. Interest expense (that is not capitalized into a fixed asset) Examples of Period CostsĮxecutive and administrative salaries and benefits Instead, it is typically included within the selling and administrative expenses section of the income statement. Tuition can be paid quarterly, but isn’t paid on a consistent, monthly basis. For example, tuition payments would be a periodic expense. Unlike fixed expenses, they don’t occur on a monthly basis. This type of cost is not included within the cost of goods sold on the income statement. Periodic expenses are irregular yet predictable expenses. 20 for your savings account and for paying down debt. 30 for your wants or discretionary spend items. ![]() 50 for household spending, including fixed and variable expenses. A period cost is charged to expense in the period incurred. One popular budgeting optionthe 50-30-20 budgetinvolves dividing in the following manner. Since a period cost is essentially always charged to expense at once, it may more appropriately be called a period expense. A period cost is more closely associated with the passage of time than with a transactional event. A period cost is any cost that cannot be capitalized into prepaid expenses, inventory, or fixed assets. ![]()
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