General and Administrative Expense (G&A)

What G&A expenses are

General and administrative (G&A) expenses are the day‑to‑day operating costs of running a business that are not directly tied to producing a specific product or delivering a specific service. They are a subset of operating expenses and typically exclude selling or production costs.

Common characteristics:
* Support the company as a whole rather than a single business unit
* Often include fixed and semi‑variable components
* Typically appear as part of operating expenses (frequently reported under SG&A — selling, general & administrative)

Where G&A appears on the financial statements

On the income statement:
1. Revenues are reported first.
2. Cost of goods sold (COGS) is deducted to arrive at gross margin.
3. Operating expenses — including G&A — are deducted from gross margin to calculate operating income and, after other items, net income.

Some items (e.g., interest, taxes) may be reported separately from G&A.

Fixed vs. variable components

• Fixed G&A: expenses incurred regardless of production or sales level (e.g., rent, some salaries).
• Semi‑variable G&A: costs that have a baseline level plus a variable portion (e.g., utilities, certain service contracts).
  Management often focuses on reducing the variable portion because G&A does not directly affect product or service output.

Common examples

Typical G&A expenses include:
* Rent, utilities, property taxes (if owned)
* Office supplies, subscriptions, insurance
* Depreciation on office furniture and equipment
* Salaries and benefits for corporate management and support functions (HR, accounting, legal, IT)
* Professional fees (legal, audit, consulting)

Allocating G&A across business units

Companies may allocate G&A to business units to assess true unit profitability. Allocation bases can include:
* Revenue percentage
* Headcount
* Square footage
* Direct usage (e.g., machine hours)

Example: allocating a $4,000 monthly electricity bill across departments by square footage
* Total space = 4,500 sq ft; electricity bill = $4,000
* Production (2,000 sq ft): 2,000 / 4,500 × $4,000 = $1,777.78
* Manufacturing (1,500 sq ft): 1,500 / 4,500 × $4,000 = $1,333.33
* Accounting (500 sq ft): 500 / 4,500 × $4,000 = $444.44
* Sales (500 sq ft): 500 / 4,500 × $4,000 = $444.44

Overhead and G&A

Overhead refers to ongoing business costs not directly tied to production. Many overhead items (rent, utilities, insurance, salaries) are classified as G&A when they serve general administrative functions.

Brief refresher: How to calculate COGS

COGS = beginning inventory + purchases during the period − ending inventory

Only include amounts relevant to the reporting period.

Impact of management structure

Decentralized management (decision authority distributed to mid‑ and lower‑level managers) can lead to lower centralized G&A, because support functions and overhead are distributed. Centralized organizations often show higher G&A due to consolidated support and administrative services.

Tax treatment

Most ordinary, necessary, and reasonable G&A expenses are tax‑deductible in the year they are incurred, subject to tax rules and limitations.

Key takeaways

• G&A expenses cover the general overhead and administrative costs of running a business and are recorded as operating expenses below COGS.
• They include fixed and semi‑variable items and are often manageable through allocation, budgeting, and efficiency measures.
• Proper classification and allocation of G&A helps reveal unit profitability and supports cost control and tax reporting.