SG & A — Selling, General and Administrative Expenses

Selling General Administrative Expense (SGA)

SG & A - Selling, General and Administrative Expenses

Definition: Selling general administrative (SGA) expenses refers to the money spent on operating a business. Alternatively, accountants refer to this expense as operating expenses. Usually, this line of expenses includes all costs that a business incurs that arise from activities unrelated to production of goods/services.

In business, a company will incur two major types of costs. On the one hand, there are the expenses related to production and delivery of goods/services.

When preparing the income statement of the company, accountants bundle together all expenses that directly affect production and delivery of goods into the cost of goods sold (COGS) line.

The second type of costs is those whose influence on product development and delivery is minimal. Such costs are what go under SGA.

Selling General Administrative Expenses SGA Formula

The expenses under SGA come from certain departments of a company, which include the corporate affairs department (which incurs corporate expenses), the accounting and legal departments (which incur legal and accounting expenses),and the sales and marketing departments(which incur sales and marketing expenses). Other departments include HR (especially one that manages work force used for non-production duties).

While SGA includes costs unrelated to production and delivery of goods, it does not include research and development expenses. Also, financing costs interest payment and interest income are not part of SGA. That is why you get operating profits or earnings before interest and tax (EBIT) when you deduct SGA from gross profits. The formula for EBIT is:

EBIT = Gross profits – (COGS + SGA)

Where EBIT = earnings before interest and tax

COGS = costs of goods sold

SGA = selling, general and administrative expenses

If you had a an ice cream business, the COGS would include the cost of ice cream maker, the wages of the people controlling the machine, the raw materials, and the wages of the driver that delivers the products. On the other hand, the SGA would include the money spent on ads, the wages of a sales agent handing out flyers on the road, and the cost of running a company website.

Why should a business tightly control the size of SGA cost?

From the foregoing, it is clear that SGA is crucial for a business when it comes to breaching the breakeven point. Oftentimes, a large SGA expense means that a business will take longer to break even.

Therefore, it is prudent for the management to put the SGA cost on a tight leash if the business is to turn profitable. One of the tricks management can use to keep SGA cost grounded is through frequent reviewing of discretionary costs.

Also, implementing zero-base budgeting technique could help to reign in the SGA cost.

However, it is common for some costs that fall under SGA to relocate to the cost of goods sold (COGS) segment. Usually, this happens when the cost has a direct influence on the sale of certain products. For example, take the sales and marketing department that is looking to increase sales numbers.

To this end, the department offers sales commissions to employees to spur higher sales. Naturally, the expense falls under the general company overhead and, thus, should fall under SGA costs.

However, since this cost directly affects the sales numbers of the given product, accountants can relocate it from SGA to COGS.

Selling General Administrative Expense Example

Company Theta produces ice cream for the local market. The company’s accountant prepared the income statement for Q4 FY2019, which included the SGA costs. Below is how the income statement looks .

Income Statement for Company Theta for Q4, FY 2019

Revenues and ExpensesAmount ($)
Gross sales revenue229,259
Cost of goods sold (COGS)(95,225)
Selling, general and administrative costs (SG&A)(21,266)
Interest expense(4,246)
Tax expense(8,234)
Net Income98,829

SGA Sales Ratio

This important metric informs management about how the business eats up the money earned from sales of goods/services. To calculate the SGA to sales ratio, you simply divide the total SGA costs by the gross sales revenue. For Company Theta, the SGA to sales ratio is:

= SGA/Gross sales revenue

=21,266/229,259 = 0.0928

= 0.0928 x 100 = 9.28%.

Apparently, Company Theta spends just 9.28% of its revenue on business operations. Usually, a smaller SGA sales ratio implies that the business is healthy.


SG&A Expenses and Why They’re Important

SG & A - Selling, General and Administrative Expenses

Selling, general, and administrative costs (SG&A) are costs incurred by your business that are not directly related to the cost of producing a product or delivering a service. SG&A expenses are always separately tracked from your cost of goods sold and are considered a part of doing business.

Overview: What is selling, general & administrative expenses (SG&A)?

SG&A costs are frequently referred to as operating costs, meaning the day-to-day expenses of running your business. Because these costs cannot be directly associated with production, they are usually reported as individual line items on an income statement.

On a summary income statement, SG&A expenses are reported as a single line item total under operating expenses, although it’s up to the business owner to decide how they wish to display these expenses on their income statement.

Most accounting software applications take care of tracking of SG&A expenses, providing business owners with an easy way to analyze the results.

Various types of selling, general, and administrative expenses (SG&A)

Anything that is not directly related to product production and the cost of goods sold is usually considered a SG&A expense. Commonly referred to as indirect costs, operating or SG&A expenses can include the following.

1. Selling expenses

Selling expenses are those that are directly related to the sales process and include these types of expenses.

  • Advertising and marketing costs
  • Sales staff wages
  • Sales commissions
  • Travel
  • Promotional items such as flyers and brochures

Travel expenses can quickly get hand for small businesses. Source:

2. General expenses

General expenses are those that are not directly associated with either a department or a product but are necessary for the business to continue operations. General expenses can include the following items.

  • Rent
  • Utilities
  • Office expenses such as petty cash
  • Insurance
  • Software and technology costs

3. Administrative expenses

Administrative expenses are usually centered on staff and consulting costs. In most cases, smaller businesses will have limited administrative costs.

  • Management and executive salaries
  • Staff accountants
  • IT personnel
  • Legal staff
  • Consultants

What’s the difference between SG&A and operating expenses?

In many cases, there is no difference between SG&A and operating expenses, with the only distinction being the level of detail with which these expenses appear on your income statement.

Larger corporations often find it helpful to separate expenses into each SG&A category for tracking purposes. However, in most cases, small businesses can use either term when calculating non-production costs.

How to calculate selling, general, and administrative expenses (SG&A)

If you’re using accounting software, the structure of the software will automatically categorize SG&A expenses information provided during the software setup process.

If you’re using an income statement template, spreadsheet software, or a manual ledger to record transactions, you’ll need to calculate all non-product-related expenses and enter them on your income statement as an SG&A expense.

Before you can enter the total SG&A expenses on your income statement, you’ll need to create a detailed list of the selling, general, and administrative expenses, which can be added up from various expense journals.

Whether you provide line-by-line detail on your income statement or do a single line item entry, you’ll need to properly categorize SG&A expenses.

Once you’ve entered the totals, you’ll need to put them into specific categories the ones that appear in the list above. Once that’s completed, you’ll be able to record the cumulative amount on your income statement.

You can display SG&A expenses as a single line item on your income statement. Source:

Whether they are entered by category or by a single line item, SG&A expenses are always recorded in the Operating Expenses section of your income statement. You can choose to directly include depreciation expenses in your SG&A expenses or record them separately on your income statement.

In most cases, they don’t. It’s entirely up to each business to decide whether it wants to report SG&A expenses separately or just include them in operating expenses. Either method is acceptable.

Regularly reviewing SG&A expenses can help you keep track of your expenses.

While some operating expenses are fixed costs that will not vary from month to month, regularly reviewing other expenses can help you manage them better by monitoring current costs, eliminating unnecessary ones, and taking appropriate action in areas where you’re overspending.

Probably not. While all business owners need to properly track and account for their expenses, chances are that all the information you need can be found on financial statements such as your income statement.

However, for growing businesses, it can be helpful to track SG&A expenses, particularly if you’re in the manufacturing sector.

Although many smaller businesses won’t need to separate selling, general expenses, and administrative expenses, calculating SG&A expenses is still a useful process. Taking a deeper dive into your SG&A expenses can give you better insight into company performance, as well as point out areas of concern.

The best way to do this is to go through all of your SG&A expenses line by line to see if there are expenses that need to be trimmed or eliminated. There may be a few areas in particular that would benefit from a more in-depth review.

  1. Advertising: If you’re not getting results from your advertising campaigns, it’s just wasted money. When you do launch a campaign of any kind, whether it’s on a social media platform or more traditional advertising, be sure to track results to find out your return on investment.
  2. Travel: Travel expenses can quickly get hand. If your travel expenses result in increased business, they may be worth it, but think twice about travel that yields no immediate impact.
  3. Utilities: While utilities are sometimes considered a fixed cost, you do have some control over monthly utility bills. For instance, changing thermostats can have a direct impact on both heating and cooling bills, so be sure your employees aren’t arbitrarily changing the thermostat when they’re hot or cold. If your utility bills run super high, you may want to invest in a more energy-efficient system.
  4. Unnecessary subscriptions: Are you still paying for a subscription to a service you no longer use? Reexamine all of your monthly costs and determine which ones you need and which ones can be canceled.
  5. Office space: Do you need all the space you’re currently leasing? Do you need office space at all? While negotiations on a factory or warehouse may not be possible, if you rent additional space for operations, you may be able to reduce those costs.

Separately tracking SG&A expenses helps even small businesses get a better handle on operating costs. Be sure you’re tracking them properly.

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SG&A Expense (Selling, General & Administrative) — Guide, Examples

SG & A - Selling, General and Administrative Expenses

SG&A includes all non-production expenses incurred by a company in any given period. This includes expenses such as rent, advertising, marketing, accounting, litigation, travel, meals, management salaries, bonuses, and more. On occasion, it may also include depreciation expense, depending on what it’s related to.

In an income statementIncome StatementThe Income Statement is one of a company's core financial statements that shows their profit and loss over a period of time. The profit or loss is determined by taking all revenues and subtracting all expenses from both operating and non-operating activities.

This statement is one of three statements used in both corporate finance (including financial modeling) and accounting., gross profitGross ProfitGross profit is the direct profit left over after deducting the cost of goods sold, or «cost of sales», from sales revenue.

It's used to calculate the gross profit margin and is the initial profit figure listed on a company's income statement. Gross profit is calculated before operating profit or net profit.

less SG&A (and depreciation expense) equals the operating profit, also known as earnings before interest and tax (EBIT)EBIT GuideEBIT stands for Earnings Before Interest and Taxes and is one of the last subtotals in the income statement before net income.

EBIT is also sometimes referred to as operating income and is called this because it's found by deducting all operating expenses (production and non-production costs) from sales revenue..


Image Source: CFI reading financial statements course.

Some firms classify both depreciation expense and interest expenseInterest ExpenseInterest expense arises a company that finances through debt or capital leases. Interest is found in the income statement, but can also be calculated through the debt schedule.

The schedule should outline all the major pieces of debt a company has on its balance sheet, and calculate interest by multiplying the under SG&A.

If this is the case, then gross profit less SG&A equals pre-tax profit, also known as earnings before taxes (EBT)Earnings Before Tax (EBT)Earnings Before Tax (EBT), is found by deducting all relevant operating expenses and interest expense from sales revenue.

Earnings Before Tax is used for analyzing the profitability of a company without the impact of its tax regime.  This makes companies in different states or countries more easily comparable.

Selling Expense

The selling component of this expense line is related to the direct and indirect costs of generating revenue (from selling products or services).

Direct expenses are those incurred at the exact point-of-sale for a product or service.  Examples of direct selling expenses include transaction costs and commissions paid on a sale.

Indirect selling expenses are those that are incurred either before or after the sale is made and examples include salaries, benefits, and wages for salespeople, travel, and accommodation expenses.

General & Administrative (G&A) Expense

G&A expenses are the overhead costs of a business, many of which are fixed or semi-fixed. These costs don’t relate directly to selling products or service, but rather to the general ongoing operation of the business.

The most common examples are rent, insurance, utilities, supplies, and expenses related to company management, such as salaries of executives, admin staff, and non-salespeople.

Forecasting SG&A

SG&A can be forecasted through any of the following methods: as a percentage of sales revenueSales RevenueSales revenue is the income received by a company from its sales of goods or the provision of services.

 In accounting, the terms «sales» and «revenue» can be, and often are, used interchangeably, to mean the same thing. Revenue does not necessarily mean cash received.

, a growth rate over the last period, or as a fixed dollar value.

If SG&A is a consolidated, one-line item, the analyst must use discretion to select one of these (or other) methods to account for all the various expenses baked into that one line item.

Sometimes, SG&A will be a section, with items broken out in individual lines. If this is the case, then different line items will have differing forecast methods. For example, rent most ly will be a fixed dollar value every period. Advertising expenses, on the other hand, will vary with the strategic decisions a company makes during the given period.

The screenshot above is taken from CFI’s financial modeling courses, which cover forecasting SG&A expenses.

SG&A Example

Let’s use Amazon as an example of what’s included in this income statement line item. Below is a quote from Amazon’s 2016 annual report.

“General and administrative expenses primarily consist of payroll and related expenses; facilities and equipment, such as depreciation expense and rent; professional fees and litigation costs; and other general corporate costs for corporate functions, including accounting, finance, tax, legal, and human resources, among others.”

Additional resources

Thank you for reading this guide to SG&A.

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™FMVA® CertificationJoin 350,600+ students who work for companies Amazon, J.P.

Morgan, and Ferrari certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below may be useful to you:

  • Forecasting the income statementProjecting Income Statement Line ItemsWe discuss the different methods of projecting income statement line items. Projecting income statement line items begins with sales revenue, then cost
  • Analysis of financial statementsAnalysis of Financial StatementsHow to perform Analysis of Financial Statements. This guide will teach you to perform financial statement analysis of the income statement,
  • What is EBITDA?EBITDAEBITDA or Earnings Before Interest, Tax, Depreciation, Amortization is a company's profits before any of these net deductions are made. EBITDA focuses on the operating decisions of a business because it looks at the business’ profitability from core operations before the impact of capital structure. Formula, examples
  • Financial modelingFinancial ModelingFree financial modeling resources and guides to learn the most important concepts at your own pace. These articles will teach you financial modeling best practices with hundreds of examples, templates, guides, articles, and more. Learn what financial modeling is, how to build a model, Excel skills, tips and tricks


Отчет о Прибылях и убытках ч. I

SG & A - Selling, General and Administrative Expenses

Оценка будущей прибыли компаний является одной из ключевыхдля принятия инвестиционных решений. Анализ структуры отчета о прибылях иубытках – обязательный шаг в прогнозировании будущих затрат и доходов компаниии, следовательно, пристально принимается во внимание для оценки прибыльности истоимости компаний (ее акций) в целом.

Отчет о прибылях и убытках в американских источниках, какбыло упомянуто ранее, чаще всего представлен под заголовками Income Statement илиStatements of Operations.Все реже некоторые компании именуют его как Profit and Loss Statement.

В упрощенном виде структура отчета выглядит как равенство:

Net Income = Revenues – Expenses – Taxes


  • Доходы (Revenues или net sales) -денежные средства,полученные компанией за оказанные услуги или проданные товары.
  • Расходы (Expenses) – уменьшение денежных средств в процессе операционнойдеятельности компании для производства товаров, оказания услуг
  • Налоги (Income Tax) – платеж, взымаемый налоговыми органами в целях обеспечениядеятельности государства
  • Чистая Прибыль (Net Income) – денежные средстваполученные компанией за вычетом расходов и налогов

Форма отчетности построена таким образом, что каждый раз вычитая из доходов расходы, отчет «спускается» к следующему виду прибыли, которая «отчищена» от части расходов. Схематично, это можно представить так:

Разберем каждый вид прибыли и расходов детально на реальном примере. В качестве примера возьмем разработчика игр Activision Blizzard.


Net Revenues –выручка (чистая выручка) компании. Определение дановыше


Первые расходы которые «очищают» выручку компании до валовой прибыли это COGS.

1) Cost of Good Sold (COGS) – себестоимость реализованныхтоваров или услуг.

К примеру, для разработчика видеоигр Activision Blizzard эторасходы на создание и поддержку видеоигр, затраты на лицензии и авторскиеотчисления (часть разработок и интеллектуальных прав может принадлежатьсторонним разработчикам).

Gross Profit – валовая прибыль компании. Выражается равенством:

В примере с Activision Blizzard, валовая прибыль компании в 2016 ф.г составила 4,2 млрд долл (6 608 – 2 394)

2) Operating Expenses или Selling, General & Administarative (SG&A)  — операционныерасходы, или, как еще их называют, Коммерческие, общехозяйственные иадминистративные расходы. Если COGS затраты имеют прямое отношение к производственным издержкам,то SG&A учитываетиные затраты, такие как:

  • затраты компании на продажи и маркетинг(рекламу),
  • зарплату сотрудникам и менеджерам
  • Арендную плату  за помещения компании, обеспечение офисов

Некоторые компании под Operating Expenses подразумевают не только Коммерческие, общехозяйственные и административные расходы (SG&A), но и расходы на проведение исследований и разработок или Research and development costs (R&D). То есть

Operating Expenses = R&D+SG&A

Operating Income (EBIT) – операционнаяприбыль компании или прибыль компании до выплаты процентов по долгу и уплатыналогов (earnings before interest,taxes). Выражается равенством:

Operating Income = GrossProfit – Operating Expenses

EBIT – важнейший элемент отчета. Используетсярасчета ключевых метрик финансового анализа, например для NOPAT, EBITDA, FCF и т.д.

EBIT —прибыль, которая не учитывает влияния налогов и периодических выплат по долгукомпании.

Налоговые и кредитные ставки могут различаться в зависимости отстраны резиденства компании, поэтому для сравнительного анализа компаний однойотрасли, но зарегистрированных в странах с разным налоговым режимом ипроцентными ставками, используют показатели основанные на EBIT, а ни чистой прибыли компаний.

EBITDA – прибыль до вычетапроцентов, налогов и амортизации. Этот элемент почти никогда не встречается вотчете о прибылях и убытках. Однако, EBITDA — краеугольныйпоказатель, который используется в не менее чем десятке формул для финансовогоанализа компании.

Как можно легко заметить из названия, EBITDA это операционная прибыль компании плюс амортизационные отчисления.

Амортизация – этопериодическое отчисление части стоимости внеоборотных активов по мере ихизноса.Например, при производствепродукции оборудование изнашивается и через некоторое время ему потребуетсязамена.

Амортизационные отчисления – это стоимость этого оборудования,распределенная на несколько лет. Таким образом, амортизационные отчисленияуменьшают стоимость внеоборотных активов (оборудования).

Из амортизационныхотчислений формируется фонд, средства которого затем будут направлены на заменуизношенного оборудования. В англоязычных источниках амортизация делится на

  • Depreciation – для материальных активов
  • Amortisation– для нематериальных активов


SG&A Expenses | List of Selling General & Administrative Costs

SG & A - Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expense includes all the expenses incurred in the selling of the products of the company whether direct or indirect along with the entire general and the administrative expenses during an accounting period under consideration such as advertisement expenses, sales promotion expenses, marketing salaries, etc.

SG&A Expenses are those expenses that are necessary to keep the business going. However, they are not directly included in the manufacturing cost or product cost.

SG&A Expense is included in the income statement of the company and examples include –

  1. Rent
  2. Utilities
  3. Accounting and legal expenses
  4. Sales commission paid
  5. Salaries/wages

#1 – Selling Expenses

Selling expenses are divided into direct expense and indirect expenses.

  • Direct expenses are shipping expenses of the product, sales commissions.
  • Indirect expenses are the costs that occur throughout the process of manufacturing, which include product advertising and promotional expenses, traveling expenses, and telephone bills of the sales consultants.

#2 – General & Administrative Expenses

General & Administrative Expenses are the overhead expenses of the company. They are the fixed costs incurred by the company the rent, mortgages, and insurances that need to be paid. It also includes all the salaries, wages of the workers.

SG&A expense depends on the structure of the company, whether the company has more fixed costs than variable costs and vice versa.

  • Scenario 1: If the company has more fixed costs than variable costs, and if fixed cost is high, then it needs to have high annual sales. If even there is a slight dip in revenues, then it won’t be able to cover its fixed costs. Such companies have a high break to generate profits.
  • Scenario 2: If the company has more variable costs and very low fixed costs, then it will have more competition. But they survive the phases of fall in revenue as they don’t have to think to bother about covering fixed costs.

Example #1

Now we will see an example of General & Administrative Expenses.

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Rajesh is an accountant of a startup company XYZ. He needs to calculate the Selling General & Administrative expenses, which will also include the depreciation.

Rajesh needs to include the salaries of the people of all the departments of the company and also the associated taxes. E.g., utilities, telephone, insurance, rent, repairs & maintenance, associated with the building. Also, the office equipment and the advertising expenses, commissions, travel expenses, selling and marketing supplies, and administrative and general supplies.

Once he calculates the SG&A Expenses before depreciation, he deducts the depreciation of the office building, the depreciation of the office equipment. The net $ 238500 is the amount that will be reported on the income statement.

We will now see some live examples of Selling, General & Administrative expenses of some companies. We can get the data from the income statement of the company.

Example #2

SG&A Expenses of ITC is as follows:

We can get the report from the financial tab of ITC limited. We need to choose an income statement to view the SG&A expenses.

Source: Yahoo Finance

We can see that selling, general and administrative expense is reported in the operating expenses section of the income statement.


Selling, General & Administrative expenses are vital in determining your operating income. If we subtract SG&A expenses from Gross Margin, we get Operating Income.

  • It is a key element in determining the company’s profit.
  • These costs are essential in keeping the business going.
  • Sometimes to boost profitability, these costs need to be regularized.
  • During mergers and acquisitions, these costs are a key area to look at. Several repeated positions can be cut down to bring down the SG&A costs and increase the operating income.


Excessive SG&A Expenses will hurt the profit figures of the company and, in return, reduce the shareholder’s returns.

Important Points to Note

  • SG&A is an important point to remember when calculating the profitability of a company.
  • It is all the costs that are not related to the direct manufacturing of the product.
  • It is the total of the costs which are essential for the manufacturing process advertising costs, commissions, travel costs, etc.
  • Research and development costs are not included in SG&A expenses.

The other important point to take note is regarding the situations where there are overspending and the ways it can be reduced.


  • When such expenses increase too much without a rise in sales or a drop in sales, then it is very much important to reduce the SG&A costs.
  • High Selling, General & Administrative costs decrease the profitability of the shareholders.

Ways to Reduce SG&A Expense

  • Restructuring and cost-cutting are required to reduce the expenses of Selling, General & Administrative costs.
  • Reduction of non-sales personnel salaries, cut in travel costs will help to regularize these costs.


Selling, General & Administrative expenses are a major driver of operating income. As we know, Gross Margin – SG&A = Operating Income, also referred to as EBIT (Earnings before interest taxes)

Therefore an excessive SG&A expense leads to a decrease in EBIT. But these expenses are also important to carry on a day to day activities. Therefore a balanced amount should be spent keeping in mind the structure of the company (more fixed costs than variable costs and vice versa).

This article has been a guide to what is SG&A Expense and its definition. Here we discuss the list of Selling, General & Administrative Expenses along with practical examples, its importance, and disadvantages. You can learn more about Accounting from the following article s-


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