Understanding Recurring Expenses vs. Non-Recurring Expenses

Recurring Expenses vs. Non-Recurring Expenses: an Overview

Selling, general, and administrative expenses (SG&A) represent a broad category of costs involved with the operations of a business. Within this broad category, you will find recurring and non-recurring expenses, each reported in various ways on a company’s financial statements. The main difference between recurring and nonrecurring general and administrative expenses can best be understood as the difference between regular, fixed expenses a company expects to have on an ongoing basis versus expenses that occur one-time or extraordinarily.

Recurring Expenses

Recurring general and administrative operating expenses are the normal, ongoing expenses required for operating a company in the company’s chosen line of business. These expenses typically appear on a company’s income statement as indirect costs and are also factored into the balance sheet and cash flow statements. Commonly, general and administrative expenses include things such as salaries for company executives and wages or salaries for employees, any research and development costs, travel and related expenses, computer support services, and depreciation that may apply to property, equipment, or other company assets over the long term.

Most recurring expenses are a type of indirect, operating cost incurred beyond the basic cost of goods sold measure. As such, on the income statement, they usually fall after the net revenue calculation and are integrated to arrive at total operating income.

Each company will manage the reporting of recurring expenses based on the individual operations of their business. Some companies may combine all of the recurring expenses in a single line item titled SG&A or G&A, which can keep a great deal of recurring expense information hidden and internal. Other companies may broaden the line items they use for recurring expenses to include more detail for reporting purposes.

Recurring expenses also weave into the balance sheet and cash flow statements. On the balance sheet, these items will be reported as liabilities and may be further delineated as short-term and long-term obligations. On the cash flow statement, recurring charges are usually represented in operating activities.

Non-Recurring Expenses

Non-recurring expenses can be somewhat more complex. These are expenses specifically designated on a company’s financial statements as an extraordinary or one-time expense the company does not expect to continue over time, at least not on a regular basis.

Companies may need to report nonrecurring expenses for things such as mergers, acquisitions, purchases of real estate, purchases of equipment, large-scale facility upgrades, severance pay costs from a workforce reduction, or repair costs following a natural disaster or accident.

Many times companies will make adjustments to GAAP net income for nonrecurring charges. Oftentimes, however, nonrecurring charges are reported on the income statement in the indirect costs section, also as above-the-line expenses. On the balance sheet, nonrecurring costs can show up as short-term liabilities. On the cash flow statement, nonrecurring costs may be a part of operating, investing, or financing activities.

Overall, non-recurring expenses can be important for investors to note when analyzing a company’s financial statements because management has some flexibility in reporting these expenses, and such expenses may significantly skew a company’s profitability for the accounting period.