General and Administrative Expenses Definition – what are general and administrative expenses?
Types of G&A costs
Depending on a company’s size and industry, the types of G&A expenses it incurs can vary greatly, but the majority fall into the following groups:
Building expenses
Building expenses cover all costs associated with maintaining the location where the company is based. One example is the rent or mortgage on the property, as well as any property insurance the organization carries, such as fire and flood insurance. Utilities are also common costs, which include electricity and water. This category includes even minimal operating costs like cleaning and lawn care.
Salaries and wages
Another significant component of general and administrative expenses is employee salaries and wages. G&A includes expenses like paid time off, health insurance, and training in addition to an employee’s actual pay rate. Moving a new hire and paying for training-related travel are two other employee-related G&A expenses.
Insurance
Many organizations require insurance on personnel or the company itself in addition to insurance that safeguards business property. For instance, malpractice insurance is frequently required for law firms and medical facilities to protect their employees. Other forms of insurance include business income insurance, which safeguards a business in the event that production is halted, and workers’ compensation insurance, which guarantees workers receive compensation in the event that they are hurt on the job.
Licenses and fees
Businesses of all kinds require licensure to operate. For instance, in order to serve patrons, restaurants need to have food and beverage licenses. Cosmetologists must have state licenses to perform their services. General and administrative expenses include the fees associated with obtaining and renewing these licenses.
Fees cover a wide range and can include professional dues for organizations like the local Chamber of Commerce. Specific industries also have membership-based organizations. The American Hotel and Lodging Association, among many others, are organizations in the hospitality sector. G&A are crucial for organizations like these because they build a company’s credibility and make them more visible to potential customers.
Supplies
Even though many supplies, like concrete for a construction project, are not G&A costs, any costs that do not directly support a project fall under the category of general and administrative expenses. For instance, a business must pay for supplies like office equipment, machinery, and office supplies whether or not it produces a specific product. Even small things like employee snacks can be included in supply costs.
Miscellaneous
Other general and administrative expenses can vary. Miscellaneous G&A expenses include things like company outings and catering for a party. Businesses may also spend money on continuing education or training programs for employees.
What are general and administrative expenses?
A portion of a company’s operating expenses are referred to in accounting as general and administrative expenses, or G&A. These are general expenses, so they typically pertain to the entire business rather than just one location or department. G&A costs, also known as indirect costs, are fixed, not dependent on sales or other production levels.
Although G&A and overhead are similar, they differ in that G&A costs accrue whether a company is working on a project or not. The costs of producing a good or service or otherwise completing a task are specifically included in overhead.
G&A costs can include rent, insurance, utilities, and any other costs associated with running a business on a daily basis. For instance, if you run a stained-glass studio, your overhead would be the price of your glass, polish, metal framing, and other materials. Your G&A expenses would be the rent on your studio.
G&A expenses vs. SG&A expenses
Costs associated with making sales, such as marketing, consumer research, promotional materials, and advertising campaigns, are referred to as selling, general, and administrative expenses, or SG&A. They are deducted from some additional operating expenses on income statements.
It is possible to separate the terms SG&A and G&A based on their respective relationships to period costs and product costs, or sales and manufacturing. Costs associated with a product include labor, raw materials, production supplies, and other overhead not directly related to a facility. All expenses related to selling a product, such as shipping and handling charges and sales commissions, are included in period costs along with general and administrative costs.
How to calculate G&A expenses
On a company’s income statement for a particular period, general and administrative expenses typically appear below the cost of goods sold (COGS). The company then deducts COGS from net revenue to calculate the gross margin. The company subtracts general and administrative costs from the gross margin to arrive at the total net income.
Here is an example calculation for G&A expenses:
Regency, Inc. General and Administrative Expenses for September 2021
Why are G&A expenses important?
G&A expenses are deductible on a company’s tax return because they are required for businesses to operate. The company can save money by calculating these costs and properly reporting them.
How to reduce G&A expenses
Some G&A costs are variable or semi-variable, so an organization may occasionally save money by carefully planning its spending. Printer ink and paper, for instance, are examples of non-overhead supplies that fall under the G&A category. Going paperless could help you save money if you’re in charge of these expenses.
Moving your company’s office to a less expensive location or thinking about relocating some or all of the workforce to remote positions are two additional ways to reduce G&A. Cost savings in these areas can boost spending efficiency and raise the company’s overall value.
FAQ
What are administrative expenses examples?
- Accounting staff wages and benefits.
- Building rent.
- Consulting expenses.
- Pay and benefits for corporate management, including those for the CEO and support staff
- Depreciation on office equipment.
- Insurance.
- Legal staff wages and benefits.
- Office supplies.
What are the general expenses?
Administrative Expenses Examples Executive salaries and bonuses. Professional fees, such as legal, consulting, and audit fees. Office supplies. Subscriptions. salaries and wages of employees working in departments like accounting, human resources, etc.
