What Is SG&A in Accounting? Chron com

SG&A accounts for the costs that are essential to running the business, such as rent, salaries, office supplies, and more. Selling, general, and administrative (SG&A) expenses are a company’s overhead costs for its day-to-day operations, such as office supplies and salaries. SG&A expense and its revenue ratio play a key role in explaining company profitability.

• COGS differs from SG&A in that it includes the expenses necessary for product manufacturing, such as labor, materials, etc.
• By comparing their SG&A expenses to industry averages, companies can assess their competitiveness and identify areas for improvement.
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• SG&A expenses comprise all the day-to-day operating costs of running a business that aren’t related to producing a good or service.
• SG&A is both critical to the success of a business and vulnerable to cost-cutting.

SG&A expense ratios vary widely by industry and should therefore only be used in comparison with like industries. Pharmaceutical and healthcare have some of the highest SG&A expenses as a percent of revenue, while energy typically has a much lower ratio. Monitoring your company’s SG&A can show you where you need to cut costs. If you’re struggling to keep profits up, make a profit, or notice an increase in expenses, you may need to decrease your SG&A costs. The SG&A expense is recorded on the income statement of companies in the section below the gross profit line item. SG&A stands for “selling, general & administrative”, and is a catch-all category of expenses that is inclusive of spending that isn’t a direct cost, otherwise known as cost of goods sold (COGS).

General And Administrative Expenses

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• General expenses, or overhead expenses, are a subset of Selling, General, and Administrative (SG&A) expenses.
• In summary, SG&A costs encompass various expenses related to a company’s daily operations that are not directly tied to producing goods or services.
• Companies with high administrative fees may not operate as efficiently as those with low overhead costs, which can negatively impact their bottom line.
• Net revenue is always reported at the top, then COGS is deducted to arrive at the gross margin.

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SG&A Meaning: Selling, General & Administrative Expenses (Definition)

The two main categories of expenses on an income statement are the cost of goods sold (COGS) and selling, general, and administrative (SG&A) expenses. COGS is the expense that most directly drives revenue and refers to the direct costs of manufacturing goods sold. The SG&A report is essential for investors, analysts, and company management, providing insight into the company’s operating expenses and efficiency. By tracking SG&A expenses, a company can identify areas where it can reduce costs and improve its profitability.

Accounting for SG&A is relatively simple, though there are some important factors to consider here as well — namely, how SG&A compares to other expenses. She is a Certified Public Accountant with over 10 years of accounting and finance experience. Though working as a consultant, most of her career has been spent in corporate finance. Helstrom attended Southern Illinois University at Carbondale and has her Bachelor of Science in accounting. Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts.

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However, many contracts for larger office spaces may not allow this immediate flexibility but may provide options to downsize the space over time. Likewise, what can be considered a “good” industry average varies by sector, as some industry averages are known to be lower or higher than the general average. SG&A can also be used to calculate the SG&A ratio, which is an additional metric that calculates SG&A as a percentage of sales. The accounting for these is slightly different, though they are often listed together.

• COGS is the expense that most directly drives revenue and refers to the direct costs of manufacturing goods sold.
• R&D expenses are a company’s investment in itself, money put toward developing new products, improving existing offerings, and remaining competitive in the marketplace.
• SG&A expenses are an important benchmark as to the company’s break-even point.
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• This subjectivity can make comparing SG&A expenses between companies and identifying improvement areas challenging.
• It may be broken out into a number of expense line items, or consolidated into a single line item (which is more common when the condensed income statement is presented).
• Your income statement reports your business’s profits and losses over a specific period of time.

A gas is measured against Earth’s air, so if the gas’s specific gravity is lower than one it will float in air. For example, most pure alcohols have a density of about ~0.8, so alcohol floats on water. The specific gravity of methane compared to air is ~0.55, law firm bookkeeping so it will rise in the atmosphere. The specific gravity of hydrogen is ~0.07 and helium is 0.14, so they can be used to make lighter than air dirigibles. This content is presented “as is,” and is not intended to provide tax, legal or financial advice.