Definition: Businesses have tons of expenses during the year. In order to understand how to improve the operations of a business, the operating expenses are usually grouped into different categories based on their how they relate to the business operations. Two of the main operating expense categories are selling expenses and general and administrative expenses.
What Does General and Administrative Expenses Mean?
Selling expenses are expenses that contribute to, you guessed it, selling products. Selling expenses can include marketing, advertising, promotions, window displays, delivery costs, and any other cost that is directly associated with making sales like salesman salaries.
General and administrative expenses include all of the non-selling expenses. General and administrative expenses are costs that contribute to the overall operations of the company and can’t really be directly related back to selling or making sales. These expenses include things like overhead, management salaries, accounting fees, and other expenses used to run the business. As you can see, none of these expenses really promote or help make sales. You can’t really even allocate them back to sales. How much overhead does it take to sell a guitar? Who knows!
Dividing operating expenses into selling and general and administrative expenses helps management plan its strategy and run the business more effectively. Think about this example. The company is losing money every month, but the sales are through the roof. What is going wrong? After looking at the expenses, management found out that general and admin expenses were three times what selling expenses were. Management can then adjust the admin expenses and staff personnel to lower the general and admin expenses.