QuestionAugust 5, 2025

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

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

Solution
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Answer

True Explanation 1. Define Product Costs Product costs are costs that are directly associated with the production of goods, such as materials and labor. These costs are capitalized as inventory on the balance sheet until the goods are sold. 2. Define Period Costs Period costs are costs that are not directly tied to production, such as administrative expenses and rent. These costs are expensed on the income statement in the period they are incurred. 3. Determine Correctness The statement accurately describes how product and period costs are treated in accounting.

Explanation

1. Define Product Costs<br /> Product costs are costs that are directly associated with the production of goods, such as materials and labor. These costs are capitalized as inventory on the balance sheet until the goods are sold.<br /><br />2. Define Period Costs<br /> Period costs are costs that are not directly tied to production, such as administrative expenses and rent. These costs are expensed on the income statement in the period they are incurred.<br /><br />3. Determine Correctness<br /> The statement accurately describes how product and period costs are treated in accounting.
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