What Does G&A Stand for in Accounting?
The term G&A stands for "general and administrative." It refers to expenses within a business that are not related to sales or direct costs associated with projects. Firms receiving government funds may have to segregate G&A costs from other costs of a specific project or work-order. General and administrative expenses provide the structure, so that goods and services can be provided efficiently and effectively.
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Significance
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General and administrative expenses are the backbone of any organization. Without them, businesses will not survive. Different firms and government entities have different definitions of G&A. Usually, it includes costs related to human resources and accounting departments, rent, utilities and insurance expenses.
Firms dealing with government grants or contracts usually account for these costs in a way that can be segregated from other costs. For example, if an engineering firm gets a contract to build a machine for the federal government, all direct costs related to the projects, such as engineers' salaries, materials and parts, are separated from G&A and reported separately.
Account Segments
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To segregate and report on G&A costs separately, a company may add a segment to its account code so that these costs are easily identified. For example, you could put a number nine as the last digit in all accounts related to general and administrative costs. When you want to report on G&A costs only, you run reports based on the number nine on that position. If you want to report on all else, excluding G&A, you exclude all accounts with a nine as the last digit.
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Manufacturing
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In a manufacturing income statement, accountants show general and administrative expenses as parts of operating expenses -- not allocated to product costs. In this kind of environment, the term SG&A is used, meaning selling, general and administrative expenses. None of these expenses are allocated to inventory or cost of goods sold -- they are presented in the income statement under the classification of operating expenses with selling expenses shown separately from G&A. Note that interest expense is not part of G&A and it reports under "other expenses and losses."
G&A Rates
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Government entities often reimburse businesses for G&A costs based on a ratio. Since these funds can be substantial, the G&A calculation should be reviewed in detail. G&A rate is often based on direct costs and past history. For example, a government agency may agree to pay 20 percent as G&A rate. This means that for every dollar you are reimbursed in direct costs, 20 cents is paid as well. Many firms, at year-end, compare the G&A rate of reimbursement with actual costs to be sure the rate is reasonable.
Considerations
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G&A rates are usually approved once a year on government-funded projects. Some agencies accept fringe benefits as part of G&A, while others do not. Many government entities offer fringe rates separate from G&A. When in doubt, contact the funding agency for clarification.
Note that when dealing with government, you will have unallowed costs --costs that could be considered G&A or direct costs, but because of their nature, they are not allowed for reimbursement. Examples of such costs are alcoholic beverages, donations and contributions, and insurance policies to protect against defects in materials or workmanship of products.
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