What is a 'General And Administrative Expense - G&A'
A general and administrative expense (G&A) refers to expenditures related to the day-to-day operations of a business. General and administrative expenses pertain to operation expenses rather that to expenses that can be directly related to the production of any goods or services, including rent, utilities, insurance and managerial salaries. In the company's income statement, these expenses generally appear under operating expenses.
BREAKING DOWN 'General And Administrative Expense - G&A'
General and administrative expenses occur independently of sales activity. Even in the absence of any sales, general and administrative expenses occur. These types of expenses are listed below cost of goods sold on a consolidated income statement. Many general and administrative expenses are fixed dollar amounts and not easily attributable to cost-reduction strategies. While general and administrative expenses allow for a business to operate, the operating expenses are those necessary for the production and sale of the specific goods or services being offered.
Examples of General and Administrative Expenses
Examples of general and administrative expenses include building rent, consultant fees, depreciation on office equipment, insurance, supplies, subscriptions and utilities. Salary and benefits attributable to corporate management as well as any legal staff are also classified as general and administrative expenses. Expenditures for research and development are usually aggregated in a different expense category.
Statement of Income
The top aggregated line item on a statement of income is always net revenues. The total cost of goods sold is deducted from this figure to determine the gross margin. The general and administrative expenses are always deducted from the gross margin in a consolidated income statement to arrive at net income. Not all general and administrative expenses have to be grouped under one category; fees and interest are often classified as their own line item when deducting expenses to arrive at net income.
Cost Reduction Strategies
Because they do not directly tie to the production or sale of a product or service, management has strong incentive to minimize these types of expenses. Companies with centralized management typically experience higher general and administrative costs when compared with companies with decentralized management structures. The sales to administrative expense ratio compares the revenue generated to the amount of expenses needed to support the company’s operations.
Most general and administrative expenses incurred can be deducted from the entity’s tax return so long as the expenses are reasonable, ordinary and necessary. Items as salaries or rent for the current period must be deducted in the year they are used. Expenses of a long-term nature that benefit multiple periods are deducted over the relevant period of time.