The calculation of selling, general, and administrative expenses (SG&A) is a relatively straightforward process. The total amount of SG&A for a given period is the sum of all the individual expenses that comprise that category. There are a number of different types of SG&A expenses, but some of the most common ones include salaries and wages, advertising and marketing, office supplies, and rent. G&A expense is typically fixed, meaning that G&A expense does not fluctuate with the company’s revenues. G&A is typically incurred regardless of whether or not the company is selling product or services to its customers. Types of G&A expense include rent, utilities, executive team compensation, back office employee compensation, insurance, computer and supplies, and depreciation on back-office buildings and equipment.
Continuing to spend funds on items or services that aren’t being used naturally has a negative impact on cash flows, and subsequently on how G&A expenses impact the overall income statement. Fixed expenses are operating costs that an organization expects to incur on a regular basis at a predetermined price point. For example, if a business enters into a 12-month rent agreement for office space at a monthly rate, each monthly payment would be considered a fixed expense and recorded as G&A. By definition, fixed expenses always remain the same, and therefore can’t be brought down or eliminated through cost-reduction strategies. Before effective processes can be conceived, however, business leaders must first understand how specific costs will need to be categorized on an income statement. One such category that all small business owners should be familiar with is general and administrative expenses, or G&A.
What Are Some SG&A Typical Expenses?
These departments and expenses are ones that cannot be directly related to production or sales activities and so are segregated in the chart of accounts under a separate account category. This section not only describes the G&A departments, but also the accounts that are most commonly used within those departments. As mentioned, managing and reporting G&A expenses isn’t as simple as adding up all operating costs and printing the total next to the G&A category on an income statement. Ramp utilizes automation not only to break down operational costs into appropriate categories but to add another layer of customization to the enforcement of expense policies. But zombie spend isn’t exclusively an SaaS problem and often manifests as a simple oversight, such as auto-purchasing office supplies when teams already have more than they need.
- Instead these expenses are reported on the income statement of the period in which they occur.
- From a practical perspective, you’re going to pay salaries for most staff the same way.
- Especially as your company grows, tracking expenses can be a time intensive process and prone to error if done manually.
- This will give you the total cost of that particular expense.
- Indirect costs are any costs incurred when trying to earn sales.
- Some of the best business accounting software solutions also offer free accountant training programs to help you stay up to date on the latest functionalities and take advantage of the software.
- Other operating expenses represent all other expenses related to a company’s primary operations not included in the above categories.
Not many general and administrative expenses are variable; therefore, reducing administrative expenses is a difficult proposition. General and administrative (G&A) expenses are expenses unrelated to a specific business unit or function, which may be incurred as a benefit to the company as a whole. It is worth noting that depreciation https://quickbooks-payroll.org/ and amortization expenses are noncash expenses. For more information about noncash revenue and expenses, read the section on accrual accounting later in this lesson. Ramp analyses every transaction and identifies hundreds of actionable ways your company can cut expenses and alerts your team via email, SMS, or Slack.
More Definitions of General and Administrative Expenses
If sold by a commissioned salesperson, representative or partner, a sales commission may be due. Unlike many SG&A expenses, direct selling expenses are often variable. Bloat in G&A expenses can have a variety of causes, many of which are becoming more and more difficult to address as technology advances. Here are just a few common sg&a challenges that frequently result in bloated operating costs. For example, while the cost of both salaries and rent fall into the category of G&A, each would be featured as individual line items on the income statement. G&A expenses are important because they demonstrate how well funds are managed across an organization.
Thus, legal advisory fees like lawyers, notary publics, and tax officers are the ongoing expenses for any company. For example, the company must pay the rent for the leased land, even if it’s profiting or incurring losses. Understanding the most significant costs for office supplies can be another helpful way to reduce G&A expenses. Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of providing its services.