Administrative Expenses: Meaning, Examples, Importance

Tally Solutions |Updated on: December 13, 2021

• What are administrative expenses?
• Examples of administrative expenses
• Why are administrative expenses important for business?
• Accounting for administrative expenses
• How do businesses manage administrative expenses?

What are administrative expenses?

As the name indicates, administrative expenses are the routine expenses you incur to run your business. These are the costs associated with running a business that doesn’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 invest.

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, stationery etc.
  
  
• Recurring payments such as rent, utilities, professional memberships, maintenance fees and service fees are also classified as administrative expenses

Why are administrative expenses important for 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 business meetings, project appraisal activities and office meetings are conducted at cafeterias and in open environments. Every amount spent on these activities falls inside the administrative basket.

Accounting for administrative expenses

Most of the administrative expenses may look small in comparison to other expenses you incur.  The next question that arises is that should we even account for those? Though some may be small when you put them 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 the period in which such expenses are incurred and not in the period during which the expense was paid.

Following are some of the most common administrative expenses.

• Salaries: Salary includes salary to corporate staff such as management, finance, accounts, custodial, and IT.
  
  
• Rent: Providing office space to your employees is another significant expense. This is one reason some companies are choosing to forgo an office altogether and choose to work remotely. Given the prevailing situation,  remote culture is a new norm. 
  
  
• Food, Drinks and other Refreshments: When employees are happy and comfortable, it’s easier to show up and do their best work. These are the expenses incurred towards refreshments to keep employees 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 expenses?

It's obvious, you spend money to run your business. The spending can be as big as buying machinery to something as small as paying for stationery. One of the misconceptions that exist, especially among small businesses is that only larger expenses are riskier. Because of this, businesses fail to track small and petty expenses. 

Bigger expenses are 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 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 know all the spending’s even on little expenses and provide actionable insights that help you curtail unwanted costs. Remember, every time you save, it goes into your pocket.

Using Cost Centre Management in TallyPrime is as easy as 1,2,3. All you need is a quick one-time setup to implement cost Centre management in TallyPrime and you are in complete control of your business spending. 

Video walkthrough on cost centre management in TallyPrime