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.
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.
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 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.
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.
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.