Q1CA - Horngren'S Financial And Managerial Accounting

Question

In 100 words or fewer, explain the difference between product costs and period costs. In your explanation, explain the inventory accounts of a manufacturer.

Step-by-Step Solution

Answer

Period cost are the operating expenses and the products costs are which incurred for manufacturing the product.

Step-by-Step Solution Step 1: Definition of Manufacturing company

The manufacturing company is defined as the company which convert raw material into finished goods using labor, machinery and supplies.

Step 2: Difference between product costs and period costs

Period costs are operating costs which are expensed in the same accounting period in which they are incurred, on the other hand, the product costs are recorded as an asset and not expensed until the goods sold, then they are recorded as the expense known as cost of goods sold.