the difference between a product cost and a period cost is explained below.
Costs are classified as either product costs or period costs for the purposes of valuing inventories and evaluating expenses for the balance sheet and income statement.
Product costs are allocated to inventories and are treated as assets till the products have been sold.
Product costs become the cost of goods sold on the income statement at the point of sale.
Period costs, on the other hand, are directly taken to the income statement as expenses for the period in during which they are incurred, according to standard accrual practices.
Product cost in a merchandising company is how much the company has paid for its merchandise.
In a manufacturing company's external financial reports, product costs include all manufacturing costs.
Selling and administrative costs are regarded as period costs in both types of businesses and are expensed as they are incurred.
Hence, product cost and periodic cost differ in nature.
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