1.2.2.3. Operating Expenses and Operating Income
Moving down the income statement, the next section addresses the company’s operating expenses. Operating expenses are expenses that support the company’s operations but are not directly linked to its production of products or services. This category is mostly composed of fixed costs, since the company must incur the expense regardless of its sales volume.
A substantial component of operating expenses for many companies is selling, general, and administrative expenses (SG&A). Selling expenses include the salaries and commissions of salespeople, advertising expenses, warranty costs, shipping and travel expenses, and other expenses directly or indirectly linked to the sale of goods and services. The expansive category of general and administrative expenses includes management salaries, rent, utilities, insurance, legal and professional expenses, office supplies, and other costs associated with managing the business. Depending on the industry, the income statement may show additional categories of operating expenses, such as engineering or research and development (R&D) expenses.
Depreciation and amortization (D&A), sometimes called depreciation, depletion, and amortization (DD&A), may be set aside as its own category, or may be scattered throughout the operating expenses as separate line items wi