What are Administrative Expenses? How do Businesses Manage it?

Tally Solutions | Jan-15-2020

• What are Administrative Expenses?
• Examples of Administrative Expenses
• Why are Administrative Expenses important to a business?
• Accounting for Administrative Expenses
• How Do Businesses Manage Administrative Expenses?

What are Administrative Expenses?

As the name implies, administrative expenses are the regular expenses you incur as a part of regular business activities. These are the costs associated with running a business that don’t relate to your products or sales. These are the necessities (and sometimes the luxuries) that most companies require.

Keeping a tab on these expenses can help you make financial forecasts, claim tax deductions and determine when it's time to hire new employees.

Examples of Administrative Expenses

• Salaries and benefits paid to executives are covered under administrative expenses.
  
  
• Fees you pay to independent contractors such as attorneys and accountants.
  
  
• Supplies required for office such as paper, stationaries etc,
  
  
• Recurring payments such as rent, utilities, professional memberships, maintenance fees and service fees are also classified as administrative expenses.

Why are Administrative Expneses Important to a Business?

An office doesn’t just run itself. Your teams need a high-functioning environment in which they’re comfortable and can work without sweating about the small stuff.

This environment also helps you find the best talent and keep them around for longer. The little things - a nice colour scheme and an open feel - can be the difference between signing the person you want, and seeing them walk.

Nowadays even the business meetings, project appraisal activities and office meetings are conducted at cafeterias and at open environments. Mostly we see this culture in startups. Every amount spent on these activities falls inside the administrative basket.

Accounting for Administrative Expenses

Most of the administrative expense may look small in amount when you compare to various other expenses you incur, and the immediate question arises is that should we even account those? Though some may be small but when you put together, it has a potential impact on your overall business.

Thus, all such expenses should be accounted for and presented in the financial statement. These administrative expenses should be accounted for in the period in which such expense was incurred, not in the period during which the expense was paid.

Following are some of the most common administrative expense.

• Salaries: Salary includes salary to corporate staff such as management, finance, accounts, custodial, and IT.
  
  
• Rent: Providing the office space to your employees’ is another significant expense. This is one reason some companies are choosing to forgo an office altogether and chosen to work remotely. Although, remote culture has a long way to go. But for now, most businesses maintain a fixed address.
  
  
• Food, Drinks and other Refreshments: When employees are happy and comfortable, it’s easier to show up and do their best work. This is the expenses incurred towards refreshments to keep team members at their best.
  
  
• Other Perks to employees: Apart from Food and drinks, perks can range anywhere from a team meal at a restaurant for new staff, to a weekly yoga class, to the annual Christmas party or a paid gym membership etc.
  
  
• Work-related technical supplies: These include a screen, keyboard, batteries, mouse etc.

How do Businesses Manage Administrative Expneses?

We all know that to keep your business in operation, you spend. The spending range as big as buying machinery to as little as paying for stationeries. It’s always believed that larger spending is riskier?

The answer is ‘NO’.

Larger spending is not riskier always but not knowing your complete spending’s even on the little expenses is the risk.

Why? Just like a small leak will sink a great a ship, little expenses when you put together has the potential to impact your business in several ways. Here is why most businesses are using Cost Centre management.

Using Cost Centre management helps you to be aware of all the spending’s even on little expenses and provide actional insights for confident decision making.

Remember ‘A Penny Saved is a Penny Earned’: Every time you save, it goes to your pocket.

Using Cost Centre Management in Tally.ERP 9 is as easy as 1,2,3. All you need is a quick one-time set-up to implement cost Centre management in Tally and you get ample of insights on your business spending. Click Here to Know more!