What Are General and Administrative (G&A) Costs?

General and Administrative (G&A) costs are an important part of a company’s financial structure, representing expenses incurred to keep the entire business running. These costs provide the necessary support infrastructure without being directly tied to the production of goods or services. G&A expenses encompass a wide range of activities that benefit the organization as a whole, ensuring the company functions efficiently and meets its objectives.

Defining General and Administrative Costs

General and Administrative (G&A) costs are indirect expenses a business incurs to manage its overall operations. These costs are considered overhead, necessary to maintain the company’s existence and functionality, regardless of the volume of products manufactured or services delivered. G&A expenses support the core administrative and corporate functions that enable the business to operate consistently.

These costs are not directly traceable to the production of a specific product or service. Instead, they represent the expenses of “back office” and executive functions that provide a framework for all other business activities. G&A costs ensure the general management, oversight, and compliance of the company.

Common Examples of General and Administrative Costs

Common examples of General and Administrative costs include salaries and benefits for executive leadership and administrative staff. This covers personnel in departments like human resources, finance, legal, and corporate management, whose roles support the entire company rather than a specific product line or sales effort. These compensation expenses are fundamental to maintaining the company’s organizational structure.

Office rent for corporate headquarters or administrative facilities also falls under G&A, as these spaces are used for general oversight and not directly for manufacturing or selling. Utility expenses for these administrative offices, such as electricity, water, and internet services, are included because they enable the general operations of the business. Office supplies used by administrative staff are also G&A costs.

Legal fees for general corporate compliance, contract reviews, or intellectual property protection not tied to specific product litigation are administrative expenses. Accounting fees for annual audits, tax preparation, and general financial reporting for the company as a whole are also categorized as G&A. General business liability insurance premiums, which protect the entire organization from various risks, are another common example. Additionally, general marketing expenses focused on brand awareness or corporate communications, rather than specific product advertising, are often classified under G&A.

General and Administrative Costs Versus Other Expenses

General and Administrative costs are distinct from other major expense categories found on financial statements, such as Cost of Goods Sold (COGS) and Selling Expenses. COGS represents the direct costs associated with producing the goods a company sells or providing its services. This includes expenses like raw materials, direct labor involved in manufacturing, and factory overhead directly tied to the production process. COGS fluctuate directly with production volume, increasing as more units are made and decreasing with less production.

Selling Expenses are costs directly incurred to sell a company’s products or services. Examples include sales commissions, advertising campaigns for specific products, product delivery costs, and sales department salaries. These expenses are directly linked to generating revenue from sales activities. They are primarily focused on getting a product into the customer’s hands.

G&A costs differ because they are broad overheads that benefit the entire company’s infrastructure and overall functioning. While COGS and Selling Expenses are variable or semi-variable based on production and sales levels, many G&A costs tend to be more fixed, supporting the general corporate environment regardless of immediate sales or production fluctuations.

Reporting General and Administrative Costs

General and Administrative costs are presented on a company’s income statement, which outlines a company’s revenues and expenses over a period. These costs are usually grouped under the broader category of “Operating Expenses.” They may appear as a single line item labeled “General and Administrative Expenses” or “G&A,” or they might be broken down into sub-categories within the operating section.

The placement of G&A expenses on the income statement is below the Cost of Goods Sold. After calculating Gross Profit (Revenue minus Cost of Goods Sold), G&A expenses are deducted to arrive at Operating Income, also known as Earnings Before Interest and Taxes (EBIT). This structure clearly distinguishes the costs of core operations from the direct costs of producing goods and highlights the profitability of the company’s primary business activities.