Period Costs
Period costs are all costs in the income statement other than cost of goods sold. Period
costs are treated as expenses of the accounting period in which they are incurred because
they are expected to benefit revenues in that period and are not expected to benefit revenues
in future periods (because there is not sufficient evidence to conclude that such
future benefit exists). Expensing these costs in the period they are incurred matches
expenses to revenues.
For manufacturing-sector companies, period costs in the income statement are all
nonmanufacturing costs (for example, design costs and distribution costs). For merchandising-sector
companies, period costs in the income statement are all costs not related to
the cost of goods purchased for resale. Examples of these period costs are labor costs of
sales floor personnel and advertising costs. Because there are no inventoriable costs for
service-sector companies, all their costs in the income statement are period costs.
Exhibit 2-5 showed examples of inventoriable costs in direct/indirect and
variable/fixed cost classifications. Exhibit 2-6 shows examples of period costs in
direct/indirect and variable/fixed cost classifications at a bank.