General and Administrative Expenses

What are General and Administrative Expenses?

General and Administrative Expenses (G&A) are the ones that incur on the daily operations of a company and might not be directly linked to any certain department of function. Basically, general expenditure is about the operational overhead expenses that affect the entire company.

And, administrative expenditure is the expense that cannot be linked to any certain operation in the company like sales, production, or Manufacturing. All in all, G&A expenditure comprises specific salaries, legal fees, insurance, utilities, and rent.

Explaining General and Administrative Expenses

G&A expenditures get listed below Cost of Goods Sold (COGS) on the Income statement of a company. COGS get deducted from the total revenue to comprehend the gross margin. And then, G&A expenses get deducted from the gross margin to get the net income.

Even if there is no sales or production, a part of G&A expenditure may still get incurred. Other G&A expenditures are semi-variable. For instance, a certain minimum level of electricity is used by a company always. Beyond that, preventive measures can be taken to decrease unwanted spending on this utility.

As these expenses can easily be eradicated without any direct effect on the sale or production, management holds a substantial incentive to decrease these expenditures. The sales to administrative expense ratio help comparing the sales revenue of a company to the amount of expenditure incurred in supporting functions.

Examples of General and Administrative Expenses

Some of the G&A examples include utilities, subscriptions, supplies, insurance, Depreciation on equipment and furniture, consultant fee, building rent, and more. Salary and benefits to specific employees along with informational technology, Accounting, and legal help can also get classified under this category.

For instance, if the total electricity bill of an ABC company is Rs. 4000 per month and the business has recorded this bill under G&A expenditure; it can allocate the cost of electricity to specific departments on the Basis of square footage.

Suppose that the production Facility is established in 2000 square feet, the accounting department is in 500 square feet, the manufacturing unit is in 1500 square feet, and the sales department is in 500 square feet. Now, the total square footage will be 4500. Thus, the electricity bill can be allocated to every department as follow:

• Production Facility: (2000 / 4500 * Rs. 4000) = Rs. 1777.78
• Accounting and Sales department: (500 / 4500 * Rs. 4000) = Rs. 444.44
• And Manufacturing Unit: (1500 / 4500 * Rs. 4000) = Rs. 1333.33