An audit is a systematic and independent examination of books, statutory records and vouchers of an organization to ascertain how far the financial statements as well as non-financial disclosures present a true and fair view of the concern. It attempts to ensure that the books of accounts are properly maintained by the concern as required by law. Auditing has become such a ubiquitous phenomenon in the corporate and the public sector that academics started identifying an "Audit Society"; the auditor perceives and recognises the propositions before them for examination, obtains evidence, evaluates the same and formulates an opinion on the basis of his judgement, communicated through their audit report. Any subject matter may be audited. Auditing is a safeguard measure since ancient times. Audits provide third party assurance to various stakeholders that the subject matter is free from material misstatement; the term is most applied to audits of the financial information relating to a legal person.
Other areas which are audited include: secretarial & compliance audit, internal controls, quality management, project management, water management, energy conservation. As a result of an audit, stakeholders may evaluate and improve the effectiveness of risk management and the governance process over the subject matter; the word audit is derived from a Latin word "audire" which means "to hear". During the medieval times when manual book-keeping was prevalent, auditors in Britain used to hear the accounts read out for them and checked that the organisation's personnel were not negligent or fraudulent. Moyer identified. Chatfield documented that early United States auditing was viewed as verification of bookkeeping detail. An information technology audit, or information systems audit, is an examination of the management controls within an Information technology infrastructure; the evaluation of obtained evidence determines if the information systems are safeguarding assets, maintaining data integrity, operating to achieve the organization's goals or objectives.
These reviews may be performed in conjunction with a financial statement audit, internal audit, or other form of attestation engagement. Due to strong incentives to misstate financial information, auditing has become a legal requirement for many entities who have the power to exploit financial information for personal gain. Traditionally, audits were associated with gaining information about financial systems and the financial records of a company or a business. Financial audits are performed to ascertain the validity and reliability of information, as well as to provide an assessment of a system's internal control; as a result of this, a third party can express an opinion of the person / organisation / system in question. The opinion given on financial statements will depend on the audit evidence obtained. Due to constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements – a concept influenced by both quantitative and qualitative factors.
But the argument that auditing should go beyond just true and fair is gaining momentum. And the US Public Company Accounting Oversight Board has come out with a concept release on the same. Cost accounting is a process for verifying the cost of manufacturing or producing of any article, on the basis of accounts measuring the use of material, labor or other items of cost. In simple words, the term, cost audit means a systematic and accurate verification of the cost accounts and records, checking for adherence to the cost accounting objectives. According to the Institute of Cost and Management Accountants, cost audit is "an examination of cost accounting records and verification of facts to ascertain that the cost of the product has been arrived at, in accordance with principles of cost accounting."In most nations, an audit must adhere to accepted standards established by governing bodies. These standards assure third parties or external users that they can rely upon the auditor's opinion on the fairness of financial statements or other subjects on which the auditor expresses an opinion.
The audit must therefore be accurate, containing no additional misstatements or errors. In the US, audits of publicly traded companies are governed by rules laid down by the Public Company Accounting Oversight Board, established by Section 404 of the Sarbanes–Oxley Act of 2002; such an audit is called an integrated audit, where auditors, in addition to an opinion on the financial statements, must express an opinion on the effectiveness of a company's internal control over financial reporting, in accordance with PCAOB Auditing Standard No. 5. There are new types of integrated auditing becoming available that use unified compliance material. Due to the increasing number of regulations and need for operational transparency, organizations are adopting risk-based audits that can cover multiple regulations and standards from a single audit event; this is a new but necessary approach in some sectors to ensure that all the necessary governance requirements can be met without duplicating effort from both audit and audit hosting resources.
The purpose of an assessment is to calculate a value for it. Although the process of producing an assessment may involve an audit
Liability (financial accounting)
In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. A liability is defined by the following characteristics: Any type of borrowing from persons or banks for improving a business or personal income, payable during short or long time. An equitable obligation is a duty based on moral considerations. A constructive obligation is an obligation, implied by a set of circumstances in a particular situation, as opposed to a contractually based obligation; the accounting equation relates assets and owner's equity: Assets = Liabilities + Owner's Equity The accounting equation is the mathematical structure of the balance sheet. The most accepted accounting definition of liability is the one used by the International Accounting Standards Board.
The following is a quotation from IFRS Framework: A liability is a present obligation of the enterprise arising from past events, the settlement of, expected to result in an outflow from the enterprise of resources embodying economic benefits Regulations as to the recognition of liabilities are different all over the world, but are similar to those of the IASB. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU. Liabilities are debts and obligations of the business they represent as creditor's claim on business assets. Liabilities are reported on a balance sheet and are divided into two categories: Current liabilities — these liabilities are reasonably expected to be liquidated within a year, they include payables such as wages, accounts and accounts payable, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations. Long-term liabilities — these liabilities are reasonably expected not to be liquidated within a year.
They include issued long-term bonds, notes payables, long-term leases, pension obligations, long-term product warranties. Liabilities of uncertain value or timing are called provisions; when a company deposits cash with a bank, the bank records a liability on its balance sheet, representing the obligation to repay the depositor on demand. In accordance with the double-entry principle, the bank records the cash, itself, as an asset; the company, on the other hand, upon depositing the cash with the bank, records a decrease in its cash and a corresponding increase in its bank deposits. A debit either decreases a liability. According to the principle of double-entry, every financial transaction corresponds to both a debit and a credit; when cash is deposited in a bank, the bank is said to "debit" its cash account, on the asset side, "credit" its deposits account, on the liabilities side. In this case, the bank is debiting an asset and crediting a liability, which means that both increase; when cash is withdrawn from a bank, the opposite happens: the bank "credits" its cash account and "debits" its deposits account.
In this case, the bank is crediting an asset and debiting a liability, which means that both decrease. Contingent liability Assets Financial Accounting
Management accounting principles
Management accounting principles were developed to serve the core needs of internal management to improve decision support objectives, internal business processes, resource application, customer value, capacity utilization needed to achieve corporate goals in an optimal manner. Another term used for management accounting principles for these purposes is managerial costing principles; the two management accounting principles are: Principle of Principle of Analogy. These two principles serve the management accounting community and its customers – the management of businesses; the above principles are incorporated into the Managerial Costing Conceptual Framework along with concepts and constraints to help govern the management accounting practice. The framework ends decades of confusion surrounding management accounting approaches and techniques and their capabilities; the framework of principles and constraints will drive the classification of management accounting practices in the profession to "enable a better understanding both inside the profession and outside, of the compromises that result from inappropriate principles".
Without foundational principles and accounting professionals have no consistent footing on which to challenge or evaluate new theories of methods for managerial costing. Some management accounting methods are designed to serve and comply with financial accountancy guidelines; the importance of having distinct and separate principles for Management Accounting has received support and acknowledgement after a century of work on the topic. The idea that separate management accounting principles exist for managerial decision support distinct from financial reporting needs is now recognized by professional accounting bodies such as the International Federation of Accountants Professional Accountants In Business Committee and the Institute of Management Accountants Managerial Costing Conceptual Framework Task Force. Prior to 1929 no group – public or private – was issuing or responsible for any accounting standards. After the 1929 stock market crash, a call to regain the public's confidence and investor's trust was demanded and the Securities and Exchange Act of 1934 was passed resulting in public companies being supervised by the U.
S. Securities and Exchange Commission; this set the groundwork for GAAP Generally Accepted Accounting Principles, outlining financial accounting principles for external reporting standards for users of financial statements' information such as capital markets and creditors. Over the next 47 years many individual committees, professional bodies and boards released various financial accounting procedural frameworks until 1976 when work began on a US framework that remains in place today, governed by the Financial Accounting Standards Board. Note: Since April 1, 2001 the International Accounting Standards Board has been working on developing new international financial reporting standards; the new standards, referred to as International Financial Reporting Standards, aim to update and refine existing concepts and provide descriptive guidance that includes comparisons of reporting requirements between IFRS and U. S. GAAP; as a result of establishing International Financial Reporting Standards, the IASB and FASB Conceptual Frameworks and Standards are in the process of being updated and converged to reflect the changes in markets, business practices and the economic environment that have occurred in the two or more decades since the concepts were first developed.
One of the foundations of a set of Financial Accounting Standards is the creation of a Conceptual Framework that defines the principles upon which the standards will be based. Most major national and international accounting standards have developed conceptual frameworks to support their work on setting standards. In contrast, management accounting principles have been overlooked from both a conceptual and a standards point of view and, for the most part, overshadowed by financial accounting standards. Accepted accounting principles applies to financial accounting because it was either the only guidance they had at the time, or did not know what else to do; until no serious work has been done by the accounting profession on the conceptual differences between the use of management accounting techniques to support GAAP financial reporting and management accounting techniques used for internal decision support. This compromises the management accounting practice and the ability of management accountants to provide managers with relevant decision support and optimization information.
Yet, several innovative thinkers, shown in the Timeline below, saw value in management accounting having its own distinct set of principles. Over the last century it is more and more evident that management accounting principles be viewed as "indispensable to the evaluation and improvement of MA methods and practices". 1910 – Church. The History of Accounting; the management accounting practice was discussed in a series of articles published in The Engineering Magazine. As was typical of early management accounting practice after the industrial revolution, it was a topic of interest to engineers. Church discussed practices that conveyed the management accounting principles of causality and analogy but never formally defined them; the content of this series was reprinted in The History of Accounting Journal in 1976.1923 – John Maurice Clark. Studies in the Economics of Overhead Costs. Management Accounting theory developed and was embedded in his cost allocation
Fra Luca Bartolomeo de Pacioli was an Italian mathematician, Franciscan friar, collaborator with Leonardo da Vinci, an early contributor to the field now known as accounting. He is referred to as "The Father of Accounting and Bookkeeping" in Europe and he was the first person to publish a work on the double-entry system of book-keeping on the continent, he was called Luca di Borgo after his birthplace, Borgo Sansepolcro, Tuscany. Luca Pacioli was born between 1446 and 1448 in the Tuscan town of Sansepolcro where he received an abbaco education; this was education in the vernacular rather than Latin and focused on the knowledge required of merchants. His father was Bartolomeo Pacioli, he moved to Venice around 1464, where he continued his own education while working as a tutor to the three sons of a merchant. It was during this period that he wrote his first book, a treatise on arithmetic for the boys he was tutoring. Between 1472 and 1475, he became a Franciscan friar. Thus, he could be referred to as Fra Luca.
In 1475, he started teaching in Perugia, first as a private teacher, from 1477 holding the first chair in mathematics. He wrote a comprehensive textbook in the vernacular for his students, he continued to work as a private tutor of mathematics and was instructed to stop teaching at this level in Sansepolcro in 1491. In 1494, his first book, Summa de arithmetica, Proportioni et proportionalita, was published in Venice. In 1497, he accepted an invitation from Duke Ludovico Sforza to work in Milan. There he met, taught mathematics to, lived with Leonardo da Vinci. In 1499, Pacioli and Leonardo were forced to flee Milan when Louis XII of France seized the city and drove out their patron, their paths appear to have separated around 1506. Pacioli died at about the age of 70 on 19 June 1517, most in Sansepolcro where it is thought that he had spent much of his final years. Pacioli published several works on mathematics, including: Tractatus mathematicus ad discipulos perusinos, a nearly 600-page textbook dedicated to his students at the University of Perugia where Pacioli taught from 1477 to 1480.
The manuscript was written between December 1477 and 29 April 1478. It contains 16 sections on merchant arithmetic, such as barter, profit, mixing metals, algebra. One part of 25 pages is missing from the chapter on algebra. A modern transcription has been published by Calzoni and Cavazzoni along with a partial translation of the chapter on partitioning problems. Summa de arithmetica, geometria. Proportioni et proportionalita, a textbook for use in the schools of Northern Italy, it was a synthesis of the mathematical knowledge of his time and contained the first printed work on algebra written in the vernacular. It is notable for including one of the first published descriptions of the bookkeeping method that Venetian merchants used during the Italian Renaissance, known as the double-entry accounting system; the system he published included most of the accounting cycle. He described the use of journals and ledgers, warned that a person should not go to sleep at night until the debits equalled the credits.
His ledger had accounts for assets, capital and expenses — the account categories that are reported on an organization's balance sheet and income statement, respectively. He demonstrated year-end closing entries and proposed that a trial balance be used to prove a balanced ledger, he is considered the "Father of Accounting". Additionally, his treatise touches on a wide range of related topics from accounting ethics to cost accounting, he introduced the Rule of 72, using an approximation of 100*ln 2 more than 100 years before Napier and Briggs. De viribus a treatise on mathematics and magic. Written between 1496 and 1508, it contains the first reference to card tricks as well as guidance on how to juggle, eat fire, make coins dance, it is the first work to note. De viribus quantitatis is divided into three sections: mathematical problems and tricks, along with a collection of proverbs and verses; the book has been described as the "foundation of modern magic and numerical puzzles", but it was never published and sat in the archives of the University of Bologna, where it was seen by only a small number of scholars during the Middle Ages.
The book was rediscovered after David Singmaster, a mathematician, came across a reference to it in a 19th-century manuscript. An English translation was published for the first time in 2007. Geometry, a Latin translation of Euclid's Elements. Divina proportione. Two versions of the original manuscript are extant, one in the Biblioteca Ambrosiana in Milan, the other in the Bibliothèque Publique et Universitaire in Geneva; the subject was mathematical and artistic proportion the mathematics of the golden ratio and its application in architecture. Leonardo da Vinci drew the illustrations of the regular solids in Divina proportione while he lived with and took mathematics lessons from Pacioli. Leonardo's drawings are the first illustrations of skeletal solids, which allowed an easy distinction between front and back; the work discusses the use of perspective by painters such as Piero della Francesca, Melozzo da Forlì, Marco Palmezzano. As a side note, the "M" logo used by the Metropolitan Museum of Art in New Yo
Fund accounting is an accounting system for recording resources whose use has been limited by the donor, grant authority, governing agency, or other individuals or organisations or by law. It emphasizes accountability rather than profitability, is used by Nonprofit organizations and by governments. In this method, a fund consists of a self-balancing set of accounts and each are reported as either unrestricted, temporarily restricted or permanently restricted based on the provider-imposed restrictions; the label fund accounting has been applied to investment accounting, portfolio accounting or securities accounting – all synonyms describing the process of accounting for a portfolio of investments such as securities, commodities and/or real estate held in an investment fund such as a mutual fund or hedge fund. Investment accounting, however, is a different system, unrelated to government and nonprofit fund accounting. Nonprofit organizations and government agencies have special requirements to show, in financial statements and reports, how money is spent, rather than how much profit was earned.
Unlike profit oriented businesses, which use a single set of self-balancing accounts, nonprofits can have more than one general ledger, depending on their financial reporting requirements. An accountant for such an entity must be able to produce reports detailing the expenditures and revenues for each of the organization's individual funds, reports that summarize the organization's financial activities across all of its funds. Fund accounting distinguishes between two primary classes of fund; those funds that have an unrestricted use, that can be spent for any purposes by the organization and those that have a restricted use. The reason for the restriction can be for a number of different reasons. Examples include legal requirements, where the moneys can only be lawfully used for a specific purpose, or a restriction imposed by the donor or provider; these donor/provider restrictions are communicated in writing and may be found in the terms of an agreement, government grant, will or gift. When using the fund accounting method an organization is able to therefore separate the financial resources between those available for ongoing operations and those intended for a donor specified reason.
This provides an audit trail that all moneys have been spent for their intended purpose and thereby released from the restriction. An example may be a local school system in the United States, it receives a grant from the its local state government to support a new special education initiative, another grant from the federal government for a school lunch program, an annuity to award teachers working on research projects. At periodic intervals, the school system needs to generate a report to the state about the special education program, a report to a federal agency about the school lunch program, a report to another authority about the research program; each of these programs has its own unique reporting requirements, so the school system needs a method to separately identify the related revenues and expenditures. This is done by establishing separate funds, each with its own chart of accounts. Nonprofit organization's finances are broken into two primary categories and restricted funds; the number of funds in each category can change over time and are determined by the restrictions and reporting requirements by donors, board, or fund providers.
Unrestricted funds are, as their name suggests and therefore organizations don't need more than a single General Fund, however many larger organizations use several to help them account for the unrestricted resources. Unrestricted funds may include: General fund - This is the minimum fund needed for unrestricted resources and relates to current as well as non-current assets and related liabilities which can be used at the discretion of the organisation's governing board. Designated fund - assets which have been assigned to a specific purpose by the organisation's governing board but are still unrestricted as the board can cancel the desired use. Trading funds - Many large non-profit organisations now have shops and other outlets where they raise funds from selling goods and services; the profits from these are used for the purpose of the organisations. Plant fund - Some organizations hold their non-current assets and related liabilities in a separate fund from the current assets. Current fund – unrestricted - If the organization holds his non-current assets in a plant fund this is used to account for current assets that can be used at the discretion of the organization's governing board.
Restricted funds may include: Endowment funds - permanent are used to account for the principal amount of gifts or grants the organization is required, by agreement with the donor, to maintain intact in perpetuity or until a specific future date/event or has been used for the purpose for which it was given. Endowment funds - temporary are similar to permanent endowment funds except that at a future time or after a specified future event the endowment become available for unrestricted or purpose-restricted use by the organization Annuity and Life-Income Funds are resources provided by donors where the organization has a beneficial interest but is not the sole beneficiary; these may include charitable gift annuities or life income funds. Agency or Custodian funds are held to account for resources before they are disbursed according to the donor's instructions; the organisation has little or no discretion over the use of these resources and always equal liabilities in agency accounts. Current funds – restricted are current assets subject to restrictions assigned by donors or grantors.
Like Profit making organizations and governments
An accountant is a practitioner of accounting or accountancy, the measurement, disclosure or provision of assurance about financial information that helps managers, tax authorities and others make decisions about allocating resource. In many jurisdictions, professional accounting bodies maintain standards of practice and evaluations for professionals. Accountants who have demonstrated competency through their professional associations' certification exams are certified to use titles such as Chartered Accountant, Chartered Certified Accountant or Certified Public Accountant; such professionals are granted certain responsibilities by statute, such as the ability to certify an organization's financial statements, may be held liable for professional misconduct. Non-qualified accountants may be employed by a qualified accountant, or may work independently without statutory privileges and obligations. Cahan & Sun used archival study to find out that accountants’ personal characteristics may exert a significant impact during the audit process and further influence audit fees and audit quality.
The Big Four auditors are the largest employers of accountants worldwide. However, most accountants are employed in commerce and the public sector. In the Commonwealth of Nations, which include the United Kingdom, Australia, New Zealand, Hong Kong pre-1997, several other states recognised accounting qualifications are Chartered Certified Accountant, Chartered Accountant, Chartered Management Accountant and International Accountant. Other qualifications in particular countries include Certified Public Accountant, Chartered Professional Accountant, Certified Management Accountant, Certified Practising Accountant and members of the Institute of Public Accountants, Certified Public Practising Accountant; the Institute of Chartered Accountants of Scotland received its Royal Charter in 1854 and is the world's first professional body of accountants. A Chartered Accountant must be a member of one of the following: the Institute of Chartered Accountants in England and Wales the Institute of Chartered Accountants of Scotland Chartered Accountants Ireland a recognised equivalent body from another Commonwealth country A Chartered Certified Accountant must be a member of the Association of Chartered Certified Accountants.
A Chartered Management Accountant must be a member of the Chartered Institute of Management Accountants. A Chartered Public Finance Accountant must be a member of the Chartered Institute of Public Finance and Accountancy. An International Accountant is a member of the Association of International Accountants. An Incorporated Financial Accountant is a member of the Institute of Financial Accountants. A Certified Public Accountant may be a member of the Association of Certified Public Accountants or its equivalent in another country, is designated as such after passing the Uniform Certified Public Accountant Examination. A Public Accountant may be a member of the Institute of Public Accountants. Registered Qualified Accountant may be a member of Accountants Institute, based in SloveniaExcepting the Association of Certified Public Accountants, each of the above bodies admits members only after passing examinations and undergoing a period of relevant work experience. Once admitted, members are expected to comply with ethical guidelines and gain appropriate professional experience.
Chartered, Chartered Certified, Chartered Public Finance, International Accountants engaging in practice must gain a "practising certificate" by meeting further requirements such as purchasing adequate insurance and undergoing inspections. The ICAEW, ICAS, ICAI, ACCA and AAPA are five Recognised Supervisory Bodies in the UK. A member of one of them may become a Statutory Auditor in accordance with the Companies Act, providing they can demonstrate the necessary professional ability in that area and submit to regular inspection, it is illegal for any individual or firm, not a Statutory Auditor to perform a company audit. The ICAEW, ICAS, ICAI, ACCA, AIA and CIPFA are six recognised qualifying bodies statutory in the UK. A member of one of them may become a Statutory Auditor in accordance with the Companies Act, providing they are a member of one of the five Recognised Supervisory Bodies RSB mentioned above. All six RQBs are listed under EU mutual recognition directives to practise in 27 EU member states and individually entered into agreement with the Hong Kong Institute of Certified Public Accountants.
Further restrictions apply to accountants. In addition to the bodies above, technical qualifications are offered by the Association of Accounting Technicians, ACCA and AIA, which are called AAT Technician, CAT and IAT. In Australia, there are three recognised local professional accounting bodies which all enjoy the same recognition and can be considered as "qualified accountant": the Institute of Public Accountants, CPA Australia and the Chartered Accountants Australia and New Zealand
An income statement or profit and loss account is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period. It indicates how the revenues are transformed into the net income or net profit (the result after all revenues and expenses have been accounted for; the purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. An income statement represents a period of time; this contrasts with the balance sheet. Charitable organizations that are required to publish financial statements do not produce an income statement. Instead, they produce a similar statement that reflects funding sources compared against program expenses, administrative costs, other operating commitments; this statement is referred to as the statement of activities. Revenues and expenses are further categorized in the statement of activities by the donor restrictions on the funds received and expended.
The income statement can be prepared in one of two methods. The Single Step income statement totals subtracts expenses to find the bottom line; the Multi-Step income statement takes several steps to find the bottom line: starting with the gross profit calculating operating expenses. When deducted from the gross profit, yields income from operations. Adding to income from operations is the difference of other revenues and other expenses; when combined with income from operations, this yields income before taxes. The final step is to deduct taxes, which produces the net income for the period measured. Income statements may help investors and creditors determine the past financial performance of the enterprise, predict the future performance, assess the capability of generating future cash flows using the report of income and expenses. However, information of an income statement has several limitations: Items that might be relevant but cannot be reliably measured are not reported; some numbers depend on accounting methods used.
Some numbers depend on estimates. - INCOME STATEMENT GREENHARBOR LLC - For the year ended DECEMBER 31 2010 € € Debit Credit Revenues GROSS REVENUES 296,397 -------- Expenses: ADVERTISING 6,300 BANK & CREDIT CARD FEES 144 BOOKKEEPING 2,350 SUBCONTRACTORS 88,000 ENTERTAINMENT 5,550 INSURANCE 750 LEGAL & PROFESSIONAL SERVICES 1,575 LICENSES 632 PRINTING, POSTAGE & STATIONERY 320 RENT 13,000 MATERIALS 74,400 TELEPHONE 1,000 UTILITIES 1,491 -------- TOTAL EXPENSES -------- NET INCOME 100,885 Guidelines for statements of comprehensive income and income statements of business entities are formulated by the International Accounting Standards Board and numerous country-specific organizations, for example the FASB in the U. S.. Names and usage of different accounts in the income statement depend on the type of organization, industry practices and the requirements of different jurisdictions. If applicable to the business, summary values for the following items should be included in the income statement: Revenue - Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major operations.
It is presented as sales minus sales discounts and allowances. Every time a business sells a product or performs a service, it obtains revenue; this is referred to as gross revenue or sales revenue. Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations. Cost of Goods Sold / Cost of Sales - represents the direct costs attributable to goods produced and sold by a business, it includes material costs, direct labour, overhead costs, excludes operating costs such as selling, advertising or R&D, etc. Selling and Administrative expenses - consist of the combined payroll costs. SGA is understood as a major portion of non-production related costs, in contrast to production costs such as direct labour. Selling expenses - represent expenses needed to sell products (e.g. salaries of sales people and travel expenses, freight, depreciation of sales store buildings and equi