Which of the following is true of product costs?
A) They are expensed in the period they are paid.
B) For external reporting, GAAP requires that they be expensed before the products are sold.
C) They are first recorded in an inventory account.
D) For merchandising companies, product costs do not include freight costs.

Question

Quizplus · Accepted Answer

Product costs are first recorded in an inventory account.

Answer: B 
 For external reporting, GAAP requires that product costs be expensed before the products are sold. This is done through the cost of goods sold account.

Answer: D 
 For a merchandising company, product costs include the cost of the merchandise purchased, but not the freight costs. The freight costs are typically included in the cost of the inventory.

Therefore, options A and D are incorrect.

Which of the Following Is True of Product Costs