The most common examples are rent, insurance, utilities, supplies, and expenses related to company management, such as salaries of executives, admin staff, and non-salespeople.
These costs don’t relate directly to selling products or services but rather to the general ongoing operation of the business. G&A expenses are the overhead costs of a business, many of which are fixed or semi-fixed. Indirect selling expenses are incurred either before or after the sale is made, and examples include salaries, benefits, and wages for salespeople, travel, and accommodation expenses. Examples of direct selling expenses include transaction costs and commissions paid on a sale. The selling component of this expense line is related to the direct and indirect costs of generating revenue (from selling products or services).ĭirect expenses are those incurred at the exact point-of-sale for a product or service. If this is the case, then gross profit less SG&A equals pre-tax profit, also known as earnings before taxes (EBT). Some firms classify both depreciation expense and interest expense under SG&A. Image Source: CFI’s Reading Financial Statements course. In an income statement, gross profit less SG&A (and depreciation expense) equals the operating profit, also known as earnings before interest and tax (EBIT). On occasion, it may also include depreciation expense, depending on what it’s related to. It includes expenses such as rent, advertising, marketing, accounting, litigation, travel, meals, management salaries, bonuses, and more. SG&A includes all non-production expenses incurred by a company in any given period. They may be integrated with selling expenses (in which case the cluster of expenses is known as selling, general and administrative expenses), or they may be stated separately.Updated FebruSelling, General & Administrative (SG&A) Expense General and administrative expenses appear in the income statement immediately below the cost of goods sold. Presentation of General and Administrative Expense Consequently, switching away from a command-and-control system can reduce these expenses. Instead, all expenses must be justified before they will be allowed into the next year’s budget.Ī company that has a strong, centralized command-and-control management system in place is likely to spend much more on general and administrative expenses than a business that has a decentralized organizational structure, and which therefore does not require extra staff to control the activities of subsidiaries. One control technique is zero-base budgeting, where budgets are not automatically rolled forward from the prior year. However, many of these expenses are fixed in nature, and so can be fairly difficult to eliminate in the short term. There tends to be strong cost-reduction pressure on general and administrative expenses, since these costs do not directly contribute to sales, and so only have a negative impact on profits.
General and administrative expenses how to#
How to Control General and Administrative Expenses General and administrative expense is generally not considered to include research and development (or engineering) expenses, which are usually aggregated into a separate department. There are many types of general and administrative expenses, including the following:Ĭorporate management wages and benefits (such as for the chief executive officer and support staff) Examples of General and Administrative Expenses This information is needed to determine the fixed cost structure of a business. Another way of describing general and administrative expenses is any expense that will still be incurred, even in the absence of any sales or selling activity. These expenses are not related to the construction or sale of goods or services. General and administrative expense is those expenditures required to administer a business. What is General and Administrative Expense?
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