A period cost is a cost that is incurred in a particular accounting period but is not directly associated with the production of goods or services. Period costs are typically expensed in the period in which they are incurred, and they do not appear on the balance sheet.
Some examples of period costs include:
Selling expenses: These expenses are incurred in selling and marketing goods or services, such as sales commissions, advertising, and marketing research.
General and administrative expenses: These expenses are incurred in running the overall business, such as salaries for executives and administrative staff, rent, and utilities.
Period costs should be accounted for properly in order to provide accurate financial information to stakeholders.
The following steps should be taken to account for period costs properly:
- Identify all period costs. The first step is to identify all of the period costs that have been incurred during the accounting period. This can be done by reviewing the company’s financial records, such as invoices, expense reports, and payroll records.
- Classify period costs. Once all of the period costs have been identified, they should be classified into the appropriate expense categories. This will help to make it easier to track and analyze the costs.
- Record period costs in the appropriate accounting period. Period costs should be recorded in the accounting period in which they are incurred. This will ensure that the company’s financial statements are accurate and up-to-date.
- Analyze period costs. Period costs should be analyzed on a regular basis to identify any trends or patterns that may warrant further investigation. This analysis can help the company to identify areas where costs can be reduced or eliminated.
By following these steps, businesses can ensure that period costs are accounted for properly and that they are able to make informed decisions about how to manage these costs.
Here are some additional tips for accounting for period costs properly:
Use a consistent method of accounting for period costs from period to period. This will make it easier to track and analyze the costs over time.
Use a budgeting system to help you track and control period costs. This will help you to ensure that your costs are not out of control. You can use QuotaPath to correctly track, account and report for sales commissions.
Review your period costs on a regular basis to identify any areas where costs can be reduced or eliminated. This will help you to improve your bottom line.