What Is Included in General and Administrative Expenses?

General and Administrative (G&A) expenses represent the foundational costs a business incurs to operate, distinct from those directly involved in producing goods or services or generating sales. These expenses are essential for supporting the overall infrastructure and management of a company, ensuring its daily functions proceed smoothly. Understanding G&A expenses allows businesses to gain clarity on their indirect operational overheads for financial planning and analysis.

Defining General and Administrative Expenses

General and administrative expenses are indirect costs that a company incurs to manage its overall operations. They are not directly tied to the creation of a product or service, nor to the direct efforts of selling. G&A costs are often considered fixed expenses because they tend to remain consistent regardless of fluctuations in production or sales volume. For instance, a business must pay its office rent whether it sells one unit or a thousand. This category encompasses the overhead costs that support the entire organization.

Common Categories of General and Administrative Expenses

G&A expenses cover a broad range of costs that facilitate the day-to-day operation of a business. These expenses are crucial for maintaining the company’s infrastructure and management.

Administrative Salaries and Wages

This category includes compensation for personnel who provide overall support and management for the business. Salaries for executive leadership, human resources, accounting, legal staff, and general administrative support personnel fall under G&A. These wages are for indirect labor.

Office Rent and Utilities

Costs associated with the physical space used for administrative functions are G&A expenses. This includes rent or lease payments for office buildings, along with utilities such as electricity, water, heating, cooling, and internet services for administrative offices.

Office Supplies and Equipment

Expenses for general office necessities, such as pens, paper, printing supplies, computers, and other equipment used by administrative staff, are classified here. This also covers software subscriptions and postage for general business operations.

Professional Fees

Fees paid for external services that support the general operation of the business are G&A expenses. This includes costs for legal counsel, accounting and auditing services, tax preparation, and general consulting fees.

Depreciation and Amortization

The systematic allocation of the cost of tangible administrative assets over their useful lives is recognized as depreciation. This applies to assets like office buildings, furniture, and office equipment. Intangible assets like patents or trademarks are amortized over their useful lives.

Insurance

General business insurance policies are G&A expenses. Examples include general liability insurance, which protects against claims of bodily injury or property damage, and commercial property insurance for office assets.

Travel and Entertainment

Expenses for administrative staff travel, general business meetings, and entertainment not directly related to sales are included in G&A. These costs support the overall operational functions of the business.

Information Technology (IT) Support

Costs for maintaining the general IT infrastructure, software licenses for administrative functions, and IT support services for the entire company are G&A expenses. These include expenses for company-wide software tools and employee electronics.

Miscellaneous General Expenses

This category covers other general overheads, such as general employee training costs, subscription services used for administrative purposes, and general repairs and maintenance of administrative facilities. These expenses are still necessary for the overall operation of the business.

Differentiating G&A from Other Business Costs

Understanding the distinction between G&A expenses and other business costs is important for accurate financial reporting and analysis. Different cost classifications reflect the varying purposes and directness of business expenditures.

Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) represents the direct costs associated with producing the goods or services a company sells. These expenses include direct materials, direct labor, and manufacturing overhead. COGS fluctuates directly with the volume of production. COGS is subtracted from revenue to determine gross profit, whereas G&A expenses are typically listed below gross profit on the income statement.

Selling Expenses

Selling expenses are costs directly related to marketing and selling a company’s products or services. This category includes sales commissions, advertising and marketing campaign costs, salaries for sales staff, and shipping expenses. Selling expenses are specifically incurred to generate revenue through sales efforts. Often, G&A expenses are grouped with selling expenses under a broader “Selling, General, and Administrative (SG&A)” line item on financial statements.

Research and Development (R&D) Expenses

Research and Development (R&D) expenses are costs incurred for the innovation, design, and development of new products or processes. Although R&D is also an operating expense, it is typically segregated from G&A due to its specific nature and strategic importance for future growth. R&D costs are focused on creating future revenue streams.

Presentation of G&A on Financial Statements

General and Administrative expenses are typically presented on a company’s income statement, providing transparency regarding the costs of running the business. They are generally grouped under “Operating Expenses,” which encompasses all costs incurred in the normal course of business operations, excluding the Cost of Goods Sold.

On the income statement, G&A expenses are usually positioned below the Cost of Goods Sold and are often aggregated as a single line item, or sometimes broken down into a few distinct categories. This placement allows for the calculation of gross profit (revenue minus COGS) before deducting operating expenses, including G&A. The total G&A expenses are then subtracted, along with other operating expenses, to arrive at the company’s operating income. While some companies may combine G&A with selling expenses into a single “Selling, General, and Administrative (SG&A)” line.