Product costs are capitalized as inventory on the balance sheet and period costs are expensed on the income statement.

Question

Quizplus · Accepted Answer

This statement is correct. Product costs are costs that are directly associated with the production of goods, such as materials and labor. These costs are capitalized and recorded as inventory on the balance sheet until the goods are sold, at which point they are expensed as Cost of Goods Sold (COGS) on the income statement. Period costs, on the other hand, are costs that are not directly associated with production and are expensed on the income statement in the period in which they are incurred. Examples of period costs include selling, general, and administrative expenses (SG&A).

Product Costs Are Capitalized as Inventory on the Balance Sheet