What Is G&A in Accounting? Definition and Examples

General and administrative (G&A) expenses are a category of operating costs within a business. They represent expenditures necessary to manage overall company operations, distinct from direct production costs. They are incurred regardless of sales volume, forming a base level of overhead. Understanding G&A is important for assessing financial health and operational efficiency, as these costs directly influence profitability.

Defining General and Administrative Expenses

General and administrative expenses are indirect costs that support a business’s overarching functions rather than specific production or sales activities. These expenses are essential for administering the business and maintaining day-to-day operations. They are not directly tied to the creation of a product or service, nor are they linked to the processes of marketing and selling.

An expense is categorized as G&A if it would still be incurred even in the absence of any sales or selling activity. This makes G&A expenses largely fixed costs, meaning they do not fluctuate with changes in production volume or sales revenue. G&A costs cover essential support functions like finance, human resources, and executive leadership that benefit the entire company.

Examples of General and Administrative Costs

Many types of expenditures fall under the general and administrative category. Salaries and benefits for administrative staff, such as those in human resources, accounting, and executive management, are common G&A examples. These personnel are not directly involved in production or sales but are crucial for company functioning.

Costs associated with maintaining office space, like rent and utilities for administrative offices, are also classified as G&A. This includes expenses for electricity, water, and internet services. Office supplies, such as stationery, printer ink, and paper, represent another common G&A expense.

Professional fees paid to external service providers, including legal, accounting, and consulting fees, also fall into this category. These services ensure compliance and provide expert guidance. Business insurance premiums, such as general liability and property insurance, are considered G&A because they protect the company broadly. Depreciation of administrative assets, like office equipment and furniture, is an allocation of their cost over time and is recorded as a G&A expense.

How General and Administrative Expenses Differ from Other Costs

General and administrative expenses are distinguished from other cost categories based on their purpose within the business. One primary distinction is with the Cost of Goods Sold (COGS), which represents the direct costs associated with producing goods or services. COGS includes expenses like raw materials, direct labor, and manufacturing overhead, which are directly tied to the creation of a product. In contrast, G&A costs are indirect, supporting the entire organization rather than specific production units.

Selling expenses form another distinct category, directly related to sales and marketing efforts. These include costs such as advertising, sales commissions, and salaries for sales personnel. While selling expenses aim to generate revenue, G&A expenses are incurred to support the company’s overall operations, regardless of sales activities. A sales manager’s salary, for example, is a selling expense, while a human resources manager’s salary is a G&A expense.

Research and Development (R&D) expenses are also separate operational costs, focusing on innovation and the development of new products or processes. These expenses are distinct from the day-to-day administration covered by G&A. The classification of an expense as G&A, COGS, selling, or R&D depends on its purpose and directness to production or sales within the business structure.

Presentation on Financial Statements

General and administrative expenses are presented on a company’s income statement, a financial document that summarizes revenues and expenses over a period. These expenses are grouped under the broader category of “Operating Expenses.” Many companies combine G&A expenses with selling expenses into a single line item labeled “Selling, General, and Administrative (SG&A) expenses.”

On the income statement, G&A expenses appear below the Cost of Goods Sold (COGS). This placement allows for the calculation of gross profit (revenue minus COGS) before deducting operating expenses like G&A. The deduction of G&A and other operating expenses from gross profit helps determine the company’s operating income, which reflects profitability from core business activities.

Tracking G&A expenses provides insight into the efficiency of a company’s administrative functions. The systematic recording of these costs ensures accurate financial reporting for both internal management and external stakeholders. This allows businesses to understand the overhead required to maintain operations and their impact on net income.