Selling, general and administrative expenses shed light on the charges that an organization incurs when selling merchandise or providing services. SGA, or SG&A, expenses indicate to investors and the public whether the company is successful at reining in waste. These charges are distinct from material costs, which relate to expenses incurred in the production of finished items.
An uptick in selling expenses is sometimes an optimistic sign for corporate financiers. Shareholders may interpret the increase as a indication that corporate strategies are bearing fruit. Selling expenses are costs incurred to sell or distribute merchandise. These include advertising, sales commissions and transportation charges. Selling charges are also called period costs because they relate specifically to an accounting term, such as a quarter or fiscal year.
General and Administrative Charges
These expenses are often the performance indicators through which investors judge a company's ability to rise in any type of market. This is because general and administrative charges are usually fixed and not subject to the fluctuations of corporate sales or the economy. For example, a company's G&A expenses may remain flat even when sales increase. General and administrative costs include utilities, rent, insurance and compensation for personnel other than the sales force. G&A expenses also include charges not directly related to corporate operations--litigation and regulatory fines, for example.
These charges include depreciation and amortization, expenses that play a key role in how a company deploys its balance sheet to succeed in the marketplace. Depreciation enables the firm to spread the costs of its long-term assets over a specific period of time, or useful life. Long-term resources--also called fixed or tangible assets--include equipment, machinery and buildings. Amortization is similar to depreciation, except that it applies to intangible assets. These are resources that lack physical substance and include patents, copyrights and trademarks.
A corporate accountant records SG&A expenses in an income statement, also known as a statement of profit and loss or P&L. A company with a healthy P&L often has a greater chance of outmaneuvering rivals and cementing its dominance in the business environment. Therefore, corporate leaders do not let up on their efforts to spur sales, slash budget deficits and rein in waste in operating activities. An income statement indicates revenues, expenses and net profit.
Besides the income statement, SGA accounting entries affect other financial reports. These include a statement of cash flows, a statement of financial position and a report on shareholders' equity. A statement of financial position is also called a balance sheet.
- The Ohio State University Fact Sheet: The Profit and Loss Statement––What Does It Mean?
- "Cost Behavior and Fundamental Analysis of SG&A Costs"; Mark Anderson, Rajiv Banker, Rong Huang and Surya Janakiraman; March 14, 2006
- University of Glamorgan: Profit and Loss
- Bookkeeping Essentials: How To Read The Income Statement