Product Cost versus Period Cost

Product Cost

Product cost consists of cost which have been used in making or acquiring the product. Product costs are included in determining the cost of a product. In a manufacturing business, their period cost consist of direct materials, direct labor and factory overhead. Product cost becomes part of the cost of inventory which is why it is also called inventoriable cost.

Period Cost

Period cost are cost which are not considered as product cost. These costs are charged against revenue for its full amount and are treated as expense without regards to production and sales. This is not part of the cost of inventory. 

Management Accounting

Management Accounting or managerial accounting is the application of accounting information to assist the managers of the entity in making reasonable decisions on achieving the objectives of the entity.

It also refers to reports designed to help the internal users of the entity.

Unlike financial accounting, it does not have principles to follow in preparing reports. The managers are the ones who make rules which they probably think will be the most useful in achieving its objectives.

Nature of Business Operations

Many business are classified in one of these four types which are service, merchandising, manufacturing or financial services. But there are also some business that are a combination of two or more.

Service.A service company provides services to their clients for a fee.

Merchandising. A merchandising company buys goods which are available for sale, they add value to it, then sells them to customers with the added value.

Manufacturing. A manufacturing company buys the materials, converts them into products then sell these products to customers.

Financial services. Financial services companies deal in services related to money.

Debit and Credit

Debit is the left side of the account. It is abbreviated as Dr from the Latin word debere.

Credit is the right side of the account. It is abbreviated as Cr from the Latin word credere.



Assets are increased in debit and decreased in credit.

Liabilities are increased in credit and decreased in debit.

Equity accounts are owner's capital, withdrawals, income and expense.

Owner's capital is increased in credit and decreased in debit.

Withdrawal is increased in debit and decreased in credit. 

Income is increased in credit and decreased in debit.

Expense is increased in debit and decreased in credit.

Accounting Equation

Accounting Equation is the most basic tool in accounting. It is the foundation of the double-entry system. It states that assets should always be equal to liabilities and equity. 

You can also derive from the formula to get the liabilities and equity. 

Account

Account is the basic summary device of accounting. It shows the record of the decrease, increase and the balance of each of the element of the financial statements.

One example of account is the "T account" which is shaped like a letter T.

The debit (abbreviated as Dr) is always on the left side while the credit (abbreviated as Cr) is always on the right  side. 

Equity

Owner's Equity can also be called net worth, net assets, capital or simply equity. It refers to the owner's interest in the entity. It is also define as the residual interest  in the assets after deducting all of its liabilities.

The words used in reporting equity in the balance sheet depends on the form of business. Owner's equity is used on the balance sheet if the company is a sole proprietorship. Partners' equity is used in a partnership. And stockholders' equity or shareholders' equity in a corporation.