What is a period cost?

A period cost is any cost that cannot be capitalized into prepaid expenses, inventory, or fixed
assets. A period cost is more closely associated with the passage of time than with a transactional
event. Since a period cost is essentially always charged to expense at once, it may more
appropriately be called a period expenseA 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 and administrative salaries and benefits
Office rent
Interest expense (that is not capitalized into a fixed asset)
The preceding list of period costs should make it clear that most of the administrative costs of a
business can be considered period expenses.
Items that are not period costs are:
Costs included in prepaid expenses, such as prepaid rent
Costs included in inventory, such as direct labor, direct materials, and manufacturing
overhead
Costs included in fixed assets, such as purchased assets and capitalized interest
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 probably not a period cost.
Similar Terms
A period cost is also known as a period expeWhat is a capitalized cost?

period cost


Definitions (2)Add to FlashcardsSave to Favorites
1.Selling and general administrative expenses identified with the accounting period in which they are
incurred, and charged against sales revenue in the same period. Also called period expense.
2.Depreciation, interest, rent, and other such costs associated with the passage of time (instead of with
the units of output) and treated as fixed costs.

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