Inventoriable costs and period costs flow through the income statement at a merchandising company similar to the way costs flow at a manufacturing company.

Question

Quizplus · Accepted Answer

Merchandising companies and manufacturing companies both have inventoriable costs, which include the cost of goods sold or cost of merchandise sold. These costs are directly related to the products that the company sells and are therefore included as a part of the cost of goods sold on the income statement. Period costs, such as rent, salaries, and advertising expenses, are not directly related to the manufacturing or sale of products and are therefore expensed in the period in which they occur on the income statement. Both types of costs flow through the income statement in the same way at both types of companies.

Inventoriable Costs and Period Costs Flow Through the Income Statement