What is a period cost?
Friday, September 10, 2010 at 3:35PM A period cost is any cost that cannot be capitalized into inventory or fixed assets. A period cost is more closely associated with the passage of time than with a transactional event.
A period cost is charged to expense in the period incurred. This type of cost is not included within the cost of goods sold on the income statement. Instead, it is typically included within the selling and administrative expenses section of the income statement.
Examples of period costs are:
- Sales expenses
- Advertising expenses
- Travel and entertainment expenses
- Commissions
- Depreciation expense
- General and administrative expenses
- Executive salaries
- Office rent
- Interest expense (that is not capitalized)
Items that are not period costs are:
- Costs included in inventory, such as direct labor, direct materials, and manufacturing overhead
- Costs included in fixed assets
Thus, 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 probable not a period cost.
Similar Terms
A period cost is also known as a period expense.
Related Questions
What is a capitalized cost?
What is a fixed cost?
What is a sunk cost?
What is a variable cost?
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