Administrative Expenses Definition with Examples
Administrative Expenses Definition – “Expenses that incurs for administering the business”
These are the expenses that are not directly relates to the manufacturing, construction or sale of goods and services. In addition to this, administrative expenses are also those expenses that incurs whether there is any manufacturing or selling activity or not. However, these expenses do not involve any expense which relates to research and development. As there is a separate department in every organization for such expenses.
Managers always try to reduce this cost as these expenses do not results in generating any revenue for the organisation. As these expenses do not results in any kind of sales or increase in revenue, they are burden to the entity and results in decreasing the net income of the business. However, most expenses even occur when there are no selling activity. So, it becomes quite difficult eliminate them.
Administrative Expenses Example
To get clear understanding of administrative expenses definition, here we have come up with few examples –
- Staff salaries
- Rent of the building or premise
- Office supplies
- Insurance expenses
- Audit fees
- Consulting expenses
Treatment of Administrative Expenses in Books of Accounts
Administrative expenses appears in the Income Statement and are deducted from Gross Profit. In reality these expenses are clubbed with selling expenses and appears as selling and administrative expenses in the Income Statement.
Related Financial Terms of Administrative Expenses
- Fixed Costs Definition – Meaning, Examples and Importance
- Gross Profit Definition – Meaning, Example and Importance