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What are the differences between operating expenses and SG&A?

Modified on: 2018/07/17
A:

In many cases, the operating expenses of a company and the selling, general and administrative expenses, or SG&A, of a company represent the same thing. Other times, SG&A is listed as a subcategory of operating expenses on the income statement. Both operating expenses and SG&A are used in financial statements to represent the expenditures of business incurred through normal operations. These are aggregated in contrast with cost of goods sold, or COGS, which are business expenditures incurred through the production process of a saleable item.

Operating Expenses

Operating expenses is a broad line item that represents the costs of performing day-to-day business activities. In times of financial difficulty, operating expenses become a very important figure and a major target of cost control. Operating expenses include most costs that are recognized even when no sales occur, such as advertising costs, rent, interest payments on debt, administrative salaries, etc. The decision about whether to segregate operating expenses and SG&A is entirely up to the individual business.

Selling, General and Administrative Expenses

Most companies do not want to externally report the specific details of employee salaries, pensions, insurance, marketing costs, depreciated assets or other business expenses. To comply with reporting requirements, accountants sum up all of these numbers and include them as a single line item in a figure titled "selling, general and administrative." Often, the cost of selling company goods or services becomes a separate line item, in which case the SG&A is changed to G&A. Other companies may choose to separate marketing expenses and make them a separate line item. In general, the sales, general and administrative figure represents the same information as operating expenses.


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