Which of the following elements are included in the definition of a product as it appears on the financial statements?

• A. Direct materials, direct labor, and manufacturing overhead
• B. Cash, accounts receivable, and inventory
• C. Assets, liabilities, and equity
• D. Revenue, expenses, and gains

Answer: (A)

Verified step by step guidance

1. Understand the context of the question: The problem is asking about the elements included in the definition of a product as it appears on financial statements. This relates to the costs associated with manufacturing a product.
2. Recall the components of product costs: In financial accounting, product costs are the costs incurred to create a product. These include direct materials (raw materials used in production), direct labor (wages of workers directly involved in production), and manufacturing overhead (indirect costs like factory utilities and depreciation of equipment).
3. Eliminate unrelated options: Cash, accounts receivable, and inventory are balance sheet items but do not define a product. Similarly, assets, liabilities, and equity are elements of the accounting equation, and revenue, expenses, and gains are components of the income statement, not product costs.
4. Focus on the correct option: The correct answer is 'Direct materials, direct labor, and manufacturing overhead,' as these are the costs directly tied to the production of a product.
5. Conclude by linking to financial statements: These product costs are recorded as inventory on the balance sheet until the product is sold, at which point they are transferred to the income statement as cost of goods sold (COGS).