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What Are Administrative Expenses?

Landline telephone service and other utilities are administrative expenses.
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  • Originally Written By: Malcolm Tatum
  • Revised By: A. Joseph
  • Edited By: Bronwyn Harris
  • Last Modified Date: 17 August 2014
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Administrative expenses are costs that are associated with the management and general functions of an organization and are not directly related to a specific department. Sometimes considered part of general business expenses, these costs can be for basic needs such as rental space for the business, utilities or office supplies. Administrative costs also can include the salaries of people who are not involved in sales, production or other departments within the company, such as senior executives, secretaries and receptionists.

Not Tied to One Department

Sometimes referred to as general expenses or operating expenses, administrative expenses involve any costs that offer a wide benefit to the organization. As such, their benefits cross departmental lines and make it possible for many functions to take place. For the most part, any expense that is limited to a particular division or department of the company and which offers little or no direct benefit to other areas of the organization, is not considered an administrative expense. Some expenses that seem tied to one department, such as accounting or legal, can be considered administrative because they benefit the entire organization.

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Utilities

One of the most common types of administrative expenses in many organizations is the cost of utilities. Charges for heating, cooling, power and water are all traditionally identified as administrative expenses. The costs for Internet access as well as landline and mobile telephone services also might included. In some organizations, however, mobile phone services are classified as expenses for the departments of the employees who use those services.

Rent

Another example of an administrative expense is the cost of leasing or renting space for the organization. This can include leasing retail store space, renting a suite of offices in a building or renting manufacturing facilities, as a few examples. The entire organization benefits from having space to operate, so it is not possible to associate these charges with a specific department.

Salaries

Salaries also can be considered administrative expenses. This is particularly true for executives and managers whose responsibilities involve many areas of the organization rather than a single department. More than one area benefits from the manager’s efforts, so the expense is considered to be general in nature.

Excluded Costs

The regulations used to define administrative expenses vary from one place to another, but there are some types of costs that are almost never defined as administrative. These include any costs that can be directly connected with sales and marketing efforts or research into the development of new products or services. Manufacturing costs, whether for equipment or raw materials, also are not likely to be considered to be administrative expenses.

Charitable Organizations

For charities and other profit organizations, administrative costs are often defined differently from the way for-profit businesses define them. In many cases, any money that is brought into the charity organization and spent by the organization instead of being turned into charitable efforts or donations is counted as an administrative cost. Therefore, all of the costs of running the organization, such as for salaries, marketing, rent and utilities, would be called administrative expenses.

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anon322826
Post 3

I once saw a post saying something about, "pay the brain," which means that no brain = no company. A good CEO keeps a company running which is good for the rest. So return for the CEO cannot be measured equally.

widget2010
Post 2

It seems to me that the problem between excessive general and administrative expenses and not allowing employees to get reimbursement easily enough is a problem in almost every type of work.

Denha
Post 1

Some companies seem to give their executives all sorts of perks, allowing them to count even things like haircuts and extra meals at nice restaurants as administrative expenses. On the one hand, I suppose it's a company's prerogative what they decide to give to the people like CEOs who keep their business going. At the same time, some of this is done at the expense of the ordinary worker and things like health care and other benefits. I don't know what the answer is, though, and I'm not sure there is a good solution.

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