In accounting practice, the classification of customer support salaries often causes confusion, especially for subscription-based enterprises in non-manufacturing industries. This article explores the applicability of relevant guidance based on a specific issue faced by a subscription box rental company.

Background of the Issue

The company does not produce physical products; its business model is subscription box rental. Salaries in its operations and fulfillment segments have been included in cost of goods sold (COGS), but whether customer support team salaries should be classified under COGS or operating expenses (Opex) lacks clear guidance.

Key Considerations

Under US GAAP and IFRS, expense classification should be based on function and substance. Customer support activities are generally viewed as sales or administrative functions rather than direct production costs, and thus in most cases should be classified as Opex. However, if customer support is directly related to order fulfillment or post-sale delivery and can be reasonably allocated to the revenue recognition process, it may qualify for COGS.

"We recommend that companies assess whether customer support constitutes a necessary step in transferring goods or services to customers, rather than relying solely on department names." — Partner at an accounting firm (anonymous quote)

Industry Practice and Guidance

The SEC's guidance on expense classification for non-manufacturing companies emphasizes that COGS should include costs directly related to generating revenue. For subscription box companies, if customer support is used to handle returns, exchanges, or subscription management, it may be considered part of fulfillment activities and thus included in COGS; if used for general inquiries or complaint handling, it is more likely to fall under Opex.

Suggested Decision Path

• Identify specific customer support activities (e.g., order modifications, logistics inquiries, product usage guidance).
• Assess whether these activities are directly linked to revenue generation and fall within the scope of contract performance obligations.
• Refer to disclosures from comparable companies in the same industry, but note differences in business models.
• If still uncertain, consult professional audit institutions and maintain consistency principles.

Conclusion

Currently, there is no single authoritative guidance mandating the classification of customer support salaries. The company should make judgments based on the substance of activities, cost-benefit principles, and industry practices, and clearly disclose classification policies in the notes to the financial statements. If customer support primarily serves fulfillment, classifying it under COGS may be more reasonable; otherwise, classifying it under Opex is more prudent.