SELLING EXPENSES: CHARACTERISTICS, ACCOUNTING AND EXAMPLES - DUDAS - 2025

The selling expenses are incurred to promote and market products or services to customers. These expenses can include anything from advertising campaigns and store displays, to shipping products to customers.

Therefore, any expense associated with the sale of a product is considered a selling expense. They are one of the three types of expenses that make up the operating expenses of a business. The others are administrative expenses and general expenses.

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They can be broken down into direct and indirect expenses, associated with the sale of a product. Directs only occur when the product is sold, such as shipping supplies, delivery charges, sales commissions, travel, and any hosting of a sales representative online with a sale.

Indirects are the expenses that can be considered as the money used to obtain sales. You don't have to sell an item to incur an indirect expense. They include advertising and marketing of products, telephone bills, travel expenses and salaries of administrative sales staff.

What does it consist of? characteristics

Every time a product or service is sold, there are expenses related to the activities that generate the sales revenue. However, the implementation and fulfillment of sales are not considered selling expenses.

For example, if a business sells solar panels, the selling expense is not the cost of producing the solar panel or installing it.

They are strictly the expenses involved with the person heading into a neighborhood and spending all day knocking on doors until they get someone to buy the panels.

That seller's salary, commission, mileage, and parking will be included in the selling expense.

Some components of selling expenses can change when sales volume increases or decreases, while others remain stable. Therefore, these expenses are considered as semi-variable expenses.

Administrative expenses

The income statement groups general and administrative expenses into a single category. These are all expenses not associated with the sale or manufacture of the product.

For example, the same solar panel company has general and administrative expenses in the form of: administrative office rent, administrative staff, utilities, insurance, office supplies, and administration-related expenses.

Costs of merchandise sold

An expense not included in the selling or administrative expenses will be a cost of merchandise sold. They are all costs paid to manufacture the product sold.

For example, a company that sells solar panels has a production plant in Taiwan, where it manufactures them. The rental, labor, and supply costs to make these solar panels are the costs of merchandise sold.

Importance of differentiation

Understand how each of these expense categories affects the profitability of the business. When sales decline, consider what the money is being used for and whether it is being spent on something not necessary.

Implementing cost controls could mean a reduction in administrative expenses, cutting support staff and redirecting efforts to marketing.

You can also adjust the costs of merchandise sold, seeking to reduce product costs to increase the profit margin.

When production exceeds what is being sold, production must be reduced or more sales generated, reducing overhead until the company finds a balanced operating point.

Accounting management

Selling expenses are reported in the income statement, in the section corresponding to operating expenses, which is below the cost of merchandise sold.

They are classified as indirect expenses in the company's income statement, because they do not contribute directly to the manufacture of a product or the provision of a service.

These expenses can be fixed or variable. For example, sales commissions are a variable selling expense that depends on the level of sales achieved by the sales staff.

However, the sales force also receives fixed base salaries, which remain the same, independent of any change in the level of sales.

Selling expenses are traditionally listed before general and administrative expenses, because investors and creditors are often more concerned with expenses related to generating income.

General and administrative expenses are still important, but they don't actually produce sales.

Budget

For expense items unchanged over time, the budget simply requires setting the annual amount, determined from the previous year and adjusted for any projected changes.

For variable expenses, it is important to use a budgeting process that addresses expenses that could increase or decrease based on the level of sales in a given period of time.

For example, sales commission expenses vary each month, based on the number of units sold. The company could also have more vendors and sell more units during a given season.

Travel, advertising and marketing expenses may also change from month to month due to: seasonality, new product launches, increased vendor travel, and other events.

Examples

Selling expenses include all expenses incurred by the sales department. Among these expenses are the following:

- Salaries and salaries of salespeople and administrative sales personnel.

- Sales commissions.

- Payroll taxes.

- Benefits.

- Travel and meals.

- Rental of sales facilities / showrooms.

- Depreciation of sales department equipment.

- Advertising and promotional materials.

- Supplies and use of the telephone in the sales department.

- Other departmental administrative expenses.

If the marketing function is merged with the sales department, then various marketing expenses can be included in the above list, such as the costs of developing advertising campaigns and the costs incurred for artwork to run promotions.

Variations in selling expenses

The proportion of expenses incurred can vary substantially depending on the sales model used, depending on the business.

For example, a custom product will require considerable staff time to obtain leads and develop budgets, thus requiring a large compensation plus travel expenses.

Alternatively, if the majority of sales are passed on to outside vendors, commissions may be the largest component of selling expenses.

An online store may have low selling expenses, but it will incur large marketing expenses to advertise the site and promote it through social media.

References

1. Steven Bragg (2017). Selling expense - Sales expense. Accounting Tools. Taken from: accountingtools.com.
2. My Accounting Course (2018). What are Selling Expenses? Taken from: myaccountingcourse.com.
3. BDC (2018). Selling expenses. Taken from: bdc.ca.
4. Kimberlee Leonard (2018). Selling Expenses Vs. Administrative Expenses. Small Business - Chron.com. Taken from: smallbusiness.chron.com.
5. Investopedia (2018). Selling, General & Administrative Expense - SG&A. Taken from: investopedia.com.
6. The Balance Small Business (2018). Selling and Administrative Expense Budget Preperation. Taken from: thebalancesmb.com.