What Is Included in Selling, General & Administrative Expenses?

Selling, General & Administrative (SG&A) expenses represent the non-production costs a company incurs to operate and sell its products or services, distinct from the direct costs of manufacturing goods. Businesses typically list SG&A expenses on their income statement, usually positioned below the gross profit line. This categorization helps companies understand their operational efficiency and how changes in sales volume affect profitability.

Selling Expenses

Selling expenses encompass the costs directly related to a company’s efforts in marketing, selling, and delivering its products or services to customers. They can include a mix of fixed and variable costs, with some fluctuating based on sales volume.

Sales salaries and commissions are common examples, as they compensate the personnel directly involved in selling activities. Advertising and marketing costs, such as digital advertisements, print media campaigns, and promotional events, also fall into this category.

Additionally, sales travel and entertainment expenses, which cover costs incurred by sales teams for client meetings or business trips, are classified as selling expenses. Shipping and delivery costs, when the seller bears them and they are not already included in the Cost of Goods Sold, also contribute to this category. These expenses are essential for getting products to the customer.

General and Administrative Expenses

General and Administrative (G&A) expenses are the overhead costs associated with the overall management and operation of a business, rather than directly with production or sales. G&A expenses are largely indirect costs, meaning they are not tied to the creation of specific goods or services.

Executive and administrative salaries, covering compensation for roles like CEO, CFO, human resources, IT, and accounting staff, are a significant component of G&A. General office rent and utilities, including costs for office space, electricity, water, and internet, maintain the operational environment. Office supplies, such as stationery, printer paper, and other consumables, also fall under this umbrella.

Legal and accounting fees for professional services, including audits, tax preparation, and legal counsel, are also classified as G&A expenses. General business insurance premiums, covering property, liability, and other business risks, contribute to administrative overhead. Furthermore, depreciation of administrative assets like office furniture and computers is recognized as a G&A expense.

How SG&A Appears in Financial Statements

Selling, General & Administrative expenses are presented as a combined line item on a company’s income statement. SG&A is distinct from the Cost of Goods Sold (COGS), which includes the direct costs of producing goods, such as raw materials and direct labor.

On the income statement, COGS is subtracted from revenue to calculate gross profit. SG&A expenses are then deducted from this gross profit. This sequential presentation allows for a clear distinction between the costs directly tied to production and those related to general operations and sales efforts.

The deduction of SG&A expenses, after COGS, leads to the calculation of Operating Income, also known as Earnings Before Interest and Taxes (EBIT). This figure represents the profit generated from a company’s core business operations before accounting for non-operating expenses like interest payments and income taxes. SG&A costs are therefore crucial in determining a company’s operational profitability.