Period Costs
Period cost refers to any expense that cannot be capitalized into prepaid expenses, inventory, or fixed assets. They cannot be capitalized on a company’s balance sheet. Period costs are more closely related to the passage of time than they are to transactional events.
As period cost is always charged to expenses at once, it is better referred to as a period expense. Period costs are charged to expense in the period they are incurred.
On the income statement, this type of cost is not included in cost of goods sold. Instead, it is usually included in the selling and administrative expenses section of the income statement.
Period costs aren’t attached to one particular product or the cost of inventory like product costs. As a result, period costs are categorized as an expense in the accounting period in which they occur.
According to managerial and cost accounting, period costs are costs that are not associated with or related to the production of inventory. Some of the examples of period cost include selling, general and administrative (SG&A) expenses, marketing expenses, CEO salary, and rent expense relating to a corporate office.
These costs are not related to the production of inventory and that’s why expense in the period is incurred. Therefore, all costs which are not involved in the production of a product are period costs.
