If product costs are those costs directly associated with the manufacturing of a product, then what are period costs? Well, quite simply, everything else. That's right: If it is not a product cost, it is a period cost. These costs include selling and administrative expenses, rental expenses, executive salaries (that's right, you're good old friendly neighborhood accountant falls under period costs), advertising, marketing and most utilities. Unlike product costs, which are not expensed until the item is sold, period costs are expensed as they are incurred. Period costs follow the traditional accrual method in this way.
If rent is due on January first, then the period cost of rent is recorded as an expense on January first. That is not to say that cash actually changed hands, however. Sometimes an expense is coded to accounts payable to show that it is due but has not yet been paid. When the expense is paid, the amount shown as due in the accounts payable account goes down and the amount of money in the bank account goes down.
And that, friend, is the story of product costs versus period costs. Go forth and use the knowledge wisely!
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