What Are General and Administrative Expenses?

In accounting, general and administrative expenses represent the necessary costs to maintain a company’s daily operations and administer its business, but these costs are not directly attributable to the production of goods and services. Information on this type of expense is especially useful when calculating a company’s fixed costs.

General and Administrative Expenses

Typical items listed as general and administrative expenses include:

• Rent
• Utilities
• Insurance
• Executives wages and benefits
• Office fixtures and equipment (not related to manufacturing)
• Legal counsel and accounting staff salaries
• Office supplies

General and administrative expenses typically refer to expenses that are still incurred by a company, regardless of whether the company produces or sells anything. This type of expense is shown on the income statement, typically below cost of goods sold (COGS) and lumped with selling expenses, forming a selling, general and administrative expense line item.

Typically, any cost that does not link to the production or the selling process and is not part of research and development is classified as a general and administrative expense. As a result, general and administrative expenses do not fall under cost of goods sold and are not inventory. General and administrative expenses are also typically fixed costs in nature, as they would stay the same regardless of the level of sales that occur.

For instance, a public company must hire external auditors to audit its financial statements and footnotes on a regular basis. An audit fee is typically not associated with a production process, but this cost is still incurred regardless of whether a company produces anything or not. 

Reducing General and Administrative Expenses

Not many general and administrative expenses are variable; therefore, reducing administrative expenses is a difficult proposition.

Because administrative expenses do not directly contribute to sales or production, there is a strong incentive for management to lower a company’s general and administrative expenses. However, since these costs are typically fixed, it is often not such a quick or simple fix reduce them.

One way to reduce these expenses would be moving to a cheaper office space. This could go along with instituting remote work for some employees, and moving to a smaller space. Reducing business travel is another way to cut general and administrative expenses. Finding cheaper accountants or lawyers could also be a route to cutting this type of expense. Of course, you would still want these services to be done well. Changing insurance providers would be one more way to cut general and administrative expenses.