SG&A is classified as an operating expense, meaning it relates directly to the core business activities rather than financing or investing. Remember, direct costs are different from SG&A expenses in how they relate to your business operations. For instance, the cost of raw materials used in Bookkeeping for Painters manufacturing a product, or the labor costs directly involved in service provision, are direct costs and don’t belong in the S,G, or A categories.

Things to Consider Before Calculating the Selling, General and Administrative Expenses (SG&A)

Sometimes, the terms SG&A and operating expenses are used interchangeably. SG&A costs are typically the second expense category recorded on an income statement after COGS, like on this simple income statement for XYZ Soaps Inc. In this sample https://grottasmeralda.it/2022/03/17/the-best-receipt-apps-in-2025/ income statement, you can see how SG&A expenses are deducted from revenues along with other expenses to yield profit. Most accounting software programs can help you setup your operating expenses. The day-to-day costs of running a business fall under General & Administrative expenses (G&A). On an income statement, SG&A and any other related expenses are listed below the gross margin.

What is a Good SG&A Expense?

A sample presentation of the selling, general and administrative expense line item is highlighted in the following exhibit, which contains a condensed income statement. SG&A figures are also used to assess a company’s scalability, indicating how well the business can grow without a proportional increase in its overhead. A company that can increase sales significantly while keeping SG&A relatively stable demonstrates strong scalability. This suggests that its operational structure can support expansion efficiently. SG&A expenses are reported on a company’s income statement, which is part of a company’s annual report. Be sure to read our Complete Guide to SG&A to learn more about selling, general, and administrative expenses.

Expenses: SG&A vs COGS

Aside from monkeying with the books, there are only three possible fixes for low profitability. Two, it can figure out how to lower production costs and run more efficiently. Three, it can cut operating expenses (SG&A), which almost always means reducing the headcount. That’s why so many CEOs taking over troubled companies start by cutting the payroll in the overhead expense areas.

What are Selling, General, and Administrative Expenses (SG&A)?

It’s important to recognize that overlap can exist, and depending on how the company classifies these costs, some expenses may fall under both categories. QuickBooks offers intuitive solutions to help you track and optimize your SG&A expenses effortlessly. But many business leaders gloss over the actual profit and loss statement. Unfortunately for founders, accounting rules are very specific on some things, and surprisingly unhelpful in other areas. There are actually no Generally Accepted Accounting Principles (GAAP) rules on the type of costs that are included in the Cost of Goods Sold (COGS).

A lower SG&A margin might indicate operational efficiency, but too low can mean an underinvestment in growth. Industry-specific benchmarks are important to recognize here too as retail, tech, and manufacturing all have very different SG&A profiles. To calculate a company’s operating income, you subtract operating expenses from its gross revenue. The selling component of this expense line is related to sg&a acronym the direct and indirect costs of generating revenue (from selling products or services). In contrast, SG&A expenses are not directly tied to the production process.

• Start by leveraging technology—think customer relationship management (CRM) systems or automated marketing tools—that can amplify your sales efforts without exponentially increasing costs.
• Whether indirect or direct selling costs, general expenses like rent and utilities, or administrative costs like salaries and legal fees, SG&A costs are essential.
• Explore the non-production costs that shape a company’s financial performance and operational efficiency.
• It’s easy to slip into a mindset of emphasizing sales, research and development, or product manufacturing and short-change SG&A expenses.
• It captures the overhead required to keep a business running smoothly, from marketing products to managing administrative functions.
• Learn more about Bench, our mission, and the dedicated team behind your financial success.

Untangling General & Administrative Expenses

However, the SG&A expense must be standardized to be compared side-by-side to industry comparables, and the average benchmark varies significantly based on the specific industry. The SG&A ratio measures what percentage of each dollar earned by a company is impacted by SG&A. While rather uncommon in practice, a company’s SG&A expense can be derived by rearranging the first formula.

• When you look at a company’s income statement, you’ll find selling, general, and administrative (SG&A) expenses listed.
• Administrative costs deal with the mechanisms of managing a business while general expenses deal with the price of running a business.
• SG&A stands for Selling, General and Administrative expense and it basically covers every category of Cost of Goods Sold (COGS).
• Administrative expenses are a subset of Selling, General, and Administrative (SG&A) expenses.
• The differential between gross profit and EBIT, assuming there are no other operating expenses, represents the incurred SG&A expense in the given period.
• Often, general and administrative expenses are combined due to their similar nature as overheads that support the entire organization rather than specific production processes.

SG&A in financial statements

Let’s unpack this acronym to better understand what falls under each category. ‘Selling expenses’ relate directly to the sales process—it’s all about marketing, sales commissions, and the resources needed to close a deal, like sales-related travel costs. ‘General expenses’ might encompass rent, utilities, office supplies—essentially, they cover the day-to-day running of the business, including necessary website maintenance. Think of the behind-the-scenes action—management salaries, but most importantly, the crucial accounting expenses, and legal fees.