What is Selling Expense?

Selling expense (or sales expense) includes any costs incurred by the sales department. These costs typically include the following items:

Salesperson salaries and wages
Sales administrative staff salaries and wages
Commissions
Payroll taxes
Benefits
Travel and entertainment
Facility rent / showroom rent
Depreciation
Advertising
Promotional materials
Utilities
Other departmental administration expenses

If the marketing function is merged into the sales department, then a number of additional marketing costs may be included in the preceding list, such as the costs of developing advertising campaigns, the artwork costs incurred to develop promotional materials, and social media expenditures.

These costs are usually classified as indirect costs, since they do not vary directly with sales volume (with the exception of commissions).

Related AccountingTools Courses

Accountants' Guidebook

Bookkeeping Guidebook

The Income Statement

The proportions of costs incurred can vary dramatically by business, depending upon the sales model used. For example, a customized product will require considerable in-person staff time to obtain sales leads and develop quotes, and so will require a large compensation and travel cost. Alternatively, if most sales are handed off to outside salespeople, commissions may be the largest component of selling expense. An Internet store may have few direct selling costs, but will incur large marketing costs to advertise the site and promote it through social media.

How to Account for Selling Expense

There are varying treatments of selling expenses. Under the accrual method of accounting, you should charge them to expense in the period incurred. Under the cash basis of accounting, you should charge them to expense when paid. This means that selling expenses tend to be recognized as expenses more quickly under the accrual method than under the cash basis of accounting.

Presentation of Selling Expense

You would normally report selling expenses in the income statement within the operating expenses section, which is located below the cost of goods sold. Or, selling expense can be stated in an income statement which aggregates expenses by department; this approach is highlighted in the following exhibit.

Under a contribution margin income statement format, you would be justified in reporting commissions within the variable production expenses section of the income statement, since commissions usually vary directly with sales.