International Association of Accessibility Professionals (IAAP) Certified Administrative Professional (CAP) Practice Exam

What are period costs?

1. Expenses incurred in future accounting periods

2. Expenses allocated only to product costs

3. Expenses incurred in the current accounting period

4. Expenses related to capital investments

The correct answer is: Expenses incurred in the current accounting period

Period costs refer to expenses that are incurred within a specific accounting period and are not directly tied to the production of goods or services. These expenses are typically associated with the overall operations of a business and can include items such as rent, utilities, and administrative salaries. In contrast to product costs, which are directly related to the creation of a product and are included in inventory until the product is sold, period costs are recorded as expenses in the period they are incurred. Understanding period costs is crucial for accurately reporting financial performance, as they impact the income statement directly when recognized within the current accounting period, rather than being deferred in inventory. This recognition ensures that the company’s financial statements reflect the true cost of operating during that specific timeframe. The other choices do not accurately describe period costs; they either refer to future expenses, misallocate types of costs, or relate to capital investments, which are not considered period costs as they represent long-term investments rather than expenses for a specific period.