Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Which of the following best determines the difference between a product cost and a period cost in financial accounting?

Whether the cost is directly associated with the production or acquisition of inventory

Whether the cost is paid in cash or on credit

Whether the cost is incurred in the current or previous accounting period

Whether the cost is variable or fixed

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Verified step by step guidance

Understand the definitions of product cost and period cost: Product costs are directly associated with the production or acquisition of inventory, such as direct materials, direct labor, and manufacturing overhead. Period costs, on the other hand, are not tied to inventory production and include expenses like selling, administrative, and general expenses.

Analyze the options provided in the question: The correct distinction between product and period costs is based on whether the cost is directly associated with the production or acquisition of inventory. This is the key concept in financial accounting.

Eliminate irrelevant options: For example, whether the cost is paid in cash or on credit does not determine whether it is a product or period cost. Similarly, whether the cost is incurred in the current or previous accounting period is unrelated to this distinction. Lastly, whether the cost is variable or fixed does not define whether it is a product or period cost.

Focus on the correct option: The correct answer is the one that emphasizes the association of the cost with inventory production or acquisition. This is the fundamental difference between product and period costs.

Conclude with the importance of understanding this distinction: Knowing the difference between product and period costs is essential for accurate financial reporting and decision-making, as product costs are capitalized as inventory and expensed when sold, while period costs are expensed in the period incurred.