Administrative expenses are costs associated with the general management of an organization, such as rent, utilities, and salaries of executives, secretaries, and receptionists. These expenses benefit the entire organization and are not tied to a specific department. They are sometimes referred to as overhead or operating expenses. Production costs and costs related to sales and marketing are not considered administrative expenses. For charities and non-profit organizations, all costs of running the organization are considered administrative expenses.
Administrative expenses are expenses associated with the general management and functions of an organization and not directly related to a specific department. Sometimes considered part of business overhead, these costs can be for basic needs such as renting company space, utilities, or office supplies. Administrative costs may also include the salaries of people who are not involved in sales, manufacturing or other departments within the company, such as executives, secretaries and receptionists.
Not tied to a department
Sometimes referred to as overhead or operating expenses, administrative expenses involve any cost that provides a large benefit to the organization. As such, their benefits cross departmental lines and make it possible for many functions to be performed. For the most part, any expense that is limited to a particular division or department of the company and that provides little or no direct benefit to other areas of the organization is not considered an administrative expense. Some expenses that appear to be tied to one department, such as accounting or law, may be considered administrative because they benefit the entire organization.
Utility
One of the most common types of administrative expenses in many organizations is the cost of utilities. Heating, cooling, electricity and water costs are all traditionally identified as administrative expenses. Costs for Internet access as well as landline and mobile phone services may also be included. In some organizations, however, mobile phone services are classified as an expense by the departments of the employees who use these services.
Rent
Another example of an administrative expense is the cost of leasing or renting space for your organization. This may include renting retail store space, renting an office suite in a building, or leasing manufacturing facilities, as a few examples. The entire organization benefits from the space it needs to operate, so it is not possible to tie these expenses to a specific department.
Salaries
Salaries can also be considered administrative expenses. This is especially true for managers and executives whose responsibilities span many areas of the organization rather than a single department. More than one area benefits from the manager’s efforts, therefore the expenditure is considered to be of a general nature.
Costs not included
The regulations used to define administrative expenses vary from place to place, but there are some types of costs that are almost never defined as administrative. These include all costs that may be directly related to sales and marketing activities or research into the development of new products or services. Production costs, both for equipment and raw materials, are also not considered administrative expenses.
Charity organizations
For charities and other for-profit organizations, administrative costs are often defined differently from the way for-profit companies define them. In many cases, any money that is brought into the charitable organization and spent by the organization rather than being turned into charitable efforts or donations counts as administrative costs. Therefore, all costs of running the organization, such as wages, marketing, rent, and utilities, would be called administrative expenses.
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