Which of the Following Is True of Product Costs

question 107

Multiple Choice

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.

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Definitions:

Inventory

The raw materials, work-in-process goods, and finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.

LIFO Conformity Rule

A requirement for companies using the Last In, First Out (LIFO) method for tax reporting to also use it for financial reporting to shareholders.

Inventory Turnover

A measure of how many times a company's inventory is sold and replaced over a certain period, indicating the efficiency of inventory management.

Perpetual Inventory System

An inventory management approach where updates to inventory records are made in real-time following each transaction or event.