300600 General & Adm Expenses 2G Flashcards
The following costs were incurred by Griff Co. a manufacturer, during 20X1:
Accounting and legal fees $ 25,000
Freight-in 175,000
Freight-out 160,000
Officers salaries 150,000
Insurance 85,000
Sales representatives salaries 215,000
What amount of these costs should be reported as general and administrative expenses for 20X1?
$635,000
$810,000
$260,000
$550,000
Griff Co.’s general and administrative expenses for 20X1 would include:
Accounting and legal fees $ 25,000
Officer salaries 150,000
Insurance 85,000
Total $260,000
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(Freight-in would be part of cost of goods sold and/or inventory. Freight-out and sales representative salaries are part of selling expenses.)
Administrative Cost
Administrative costs and expenses are those costs of overall management not considered part of the production cost of goods and services or the selling costs of those goods and services. Administrative expenses include executive salaries and fringe benefits, rent and other general office expenses, and the expense of business support services such as accounting, legal, and data processing.
Administrative expenses are charged to the period (i.e., they are matched against revenue in the period in which they are incurred).
The term has a separate meaning in proceedings under the Federal Bankruptcy Code. Section 503 defines administrative expenses as “the actual, necessary costs and expense of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case.” The bankruptcy court has the final say as to what is considered an actual and necessary cost.
Transportation In
“Transportation in” is the freight expense for goods received that will be sold to others in the normal course of business. Transportation in is included in the determination of the cost of goods acquired during the period and thus is included in cost of goods sold and ending inventory. It is the opposite of “transportation out.”
Transportation Out
“Transportation out” is the expense of shipping goods to customers in the normal course of business. It is a selling expense and the opposite of “transportation in.”
2273.01
Guidance for recognizing expenses and losses is as follows (SFAC 5.85):
a. Consumption of benefit: Expenses are generally recognized when an enterprise’s economic benefits are consumed in revenue-earning activities or otherwise.
b. Loss or lack of benefit: Expenses or losses are recognized if it becomes evident that previously recognized future economic benefits of assets have been reduced or eliminated, or that liabilities have been incurred or increased, without associated economic benefits.
2273.02
Expenses are outflows of assets or incurrences of liabilities, during a period, from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations. Losses are decreases in net assets other than from expenses or withdrawals by owners.
2273.03
Expenses are accrued (expensed) based on the matching principle. The matching principle states that the accrual basis of accounting correctly matches the revenue from the sale of goods with the historical cost of the inventory sold, the salesperson’s salary, and other applicable costs and expenses. Net income or loss for an accounting period is determined by the process of associating realized revenues with those expenses and expired costs necessary to generate them. This often requires estimates and allocations.
2273.04
Following are some of the most common expenses and costs:
a. Cost of goods sold
b. Depreciation
c. Interest
d. Uncollectible accounts (i.e., bad debt)
e. Post-acquisition costs (i.e., maintenance and repairs)
f. Amortization and impairment
SFAC 6.80-.81
