General and administrative expense is those expenditures required to administer a business, and which are not related to the construction or sale of goods or services. This information is needed to determine the fixed cost structure of a business. Examples of general and administrative expenses are:
Accounting staff wages and benefits
Corporate management wages and benefits (such as for the chief executive officer and support staff)
Depreciation on office equipment
Legal staff wages and benefits
Outside audit fees
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.
General and administrative expense is generally not considered to include research and development (or engineering) expenses, which are usually aggregated into a separate department.
General and administrative expenses appear in the income statement immediately below the cost of goods sold. 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.
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. However, many of these expenses are fixed in nature, and so can be fairly difficult to eliminate in the short term.
A 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.