3/1/2023 0 Comments Cogs vs expensesThis is often done if profit and loss statements need to be reported externally and business owners don’t want to report the exact details of employee compensation or other sensitive expenses. SG&A is a blanket label that can be used to lump salaries, marketing costs, insurance, and other items together. Still, some businesses separate Sales, General, and Administrative Expenses, often as a line item under Operating Expenses. (Even if your widgets aren’t selling, you still need to keep your electricity on.)įor many businesses, SG&A expenses are exactly the same as Operating Expenses. Regardless, operating expenses aren’t directly tied to sales and thus can put you in a big crunch if you’re in a sales slump. Others, like advertising, may fluctuate somewhat. Some of these expenses are totally static, such as your rent. Operating Expenses refer to the costs associated with (you guessed it) operating your business. The expense occurs due to a sale (though the cost is usually incurred in advance of the sale, unless you produce to order). That typically includes compensation for the people who provide the service, along with any non-renewable supplies that are used in the process of providing the service.įor widget sellers, Cost of Goods Sold includes all expenses associated with the production of your widget. Cost of Service includes every expense that directly relates to the service you provide. If you’re a service provider (as opposed to a widget seller), COS is relevant for you. One place to start: Instead of simply looking at expenses at a whole, examine Cost of Service (COS) or Cost of Goods Sold (COGS) separately from Operating Expense (OE) or Sales, General, and Administrative Expense (SG&A). We think it’s valuable to scrutinize your profit and loss statements to make sure everyone’s on the same page and nothing is able to hide.īe sure to read our Complete Guide to SG&A to learn more about selling, general, and administrative expenses. This can lead to confusion and misunderstandings over what’s actually driving costs in your business. One of the most common problems with profit and loss statements is that different companies use different categories and terminology to refer to different types of expenses. Even if someone else is responsible for preparing, analyzing, presenting, and reacting to the profit and loss statement, it’s important that you - and, ideally, everyone else - truly understand what it means and how to make it a powerful tool for your business. It’s what the board and your investors keep asking about.īut many business leaders gloss over the actual profit and loss statement. After all, that’s probably what keeps you up at night. How is SG&A different from Profit and Loss (PNL)?Īs a business executive, you’re no doubt familiar with profit and loss. SG&A is a great tool to keep a macro view of your business so that you can navigate your way to success. Just what the acronym stands for, it’s the tracking of these three expenses, essentially a summary of all the expenses that it takes to run your business from top to bottom. SG&A is reported on a business’s income statement and reflects the sum of all selling expenses (both direct and indirect). SG&A stands for Selling, General & Administrative Expense.
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