What Is the Accounting Term G&A;?

by John Freedman

G&A expenses, part of a company's operating expenses, are the general and administrative expenses of a company. Generally accepted accounting principles consider operating expenses to be the day-to-day costs of running a business. G&A costs are a subset of operating expenses, excluding selling costs, such as advertising, freight out and sales wages and salaries. While the specific G&A costs across small businesses differ, some general categories seem to be present in most small companies.

Salaries and Wages

In many small businesses, employee wages and salaries make up the bulk of G&A expense. As employees complete their daily work, the company will debit the salaries and wages expense and credit payroll liability for the amount owed to the employee. In addition, the company will debit the payroll tax expense account and credit the payroll tax liability account for the employer's portion of payroll taxes. On payday, the business will remove the liability and credit the cash account, transferring funds to the employee. When remitting the payroll taxes to the government, a similar process occurs. The liability is removed with a debit, and cash is credited when the company cuts the check to the taxing authority.

Building Expenses

Most companies that have their own place of business incur some amount of building expenses. Common building expenses include rent, insurance, utilities costs and supplies. When the business incurs these costs in the accounting period that the costs are related to, the company will make a debit to G&A expense and credit cash. However, these types of costs are often prepaid. For example, a company may pay for six months of insurance in advance. In this case, the company would record an insurance asset and the reduction of cash by debiting the insurance account and crediting the cash account. These entries are made for the entire cost of the insurance. As the insurance is used, the company will then reduce the asset and recognize the expense by crediting the insurance asset and debiting G&A expense for one month of insurance. At the end of the six months, the asset will be gone and the correct amount of expense will have been recognized.

Depreciation and Amortization

Not all G&A expenses represent cash leaving the company. Depreciation and amortization expenses are a result of the matching principle of accounting. This principle tells us that we should match the costs of producing revenue to the period when the revenue is produced. When a company makes a long-term asset purchase, such as machinery or a patent, the company will record the reduction of cash with a credit to the cash account and a debit to a long-term asset account. Over time, as the asset is used, the company will record depreciation or amortization by debiting the depreciation expense account and crediting the accumulated depreciation account.

Fees and Licenses

Even the smallest of small businesses pays business fees and licensing costs. These costs are generally treated as G&A expenses. Even though most licensing fees grant the business a license to operate for a year or longer, it is not common practice to spread the costs of these licenses over time. Most often, the company will simply debit the licensing and fee expense account and credit the cash account. This is because the costs of licensing are usually immaterial when looking at the S&A costs as a whole.

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