What is Period Cost?
A period cost is any cost that is expensed in the accounting period in which it is incurred, rather than being capitalised into inventory. Selling, general, and administrative expenses are typical examples. Period costs appear in the income statement immediately, regardless of production or sales volume.
How It Works
- Identify costs not directly linked to manufacturing a product (rent of head office, marketing, salaries of sales staff).
- Charge them to the income statement in the period they relate to.
- Do not include them in inventory valuation under IAS 2.
- Use them in budget vs actual analysis to control operating expenses.
Saudi Context
Saudi companies preparing IFRS statements separate period costs from production costs to comply with IAS 2 and to give ZATCA reviewers a clear picture of operating expenses versus cost of goods sold for VAT and zakat calculations.
Example
A Jeddah retailer pays SAR 25,000 monthly office rent and SAR 40,000 in marketing. These SAR 65,000 are period costs charged to the income statement in the same month, regardless of how much was sold.