Operating Expenses Overview, Example, Importance

Operating expenses are categorized into marketing and administrative expenses. Marketing expenses include advertisements, sales salaries, business cards, and trade show booths. Administrative expenses include rent, credit card fees, office staff salaries, and professional fees. Operating expenses are different from non-operating expenses in that operating expenses occur even if no goods are produced, while any costs directly related to producing https://www.bookstime.com/ goods that are sold are COGS. An operating expense is any expense needed to keep a business running that is not directly related to the production of goods sold. Operating expenses are important for keeping track of costs so that management and investors can properly determine if a business is running properly and keep the business running. Operating expenses can be found on an income statement after gross sales profit is calculated.

Some firms successfully reduce operating expenses to gain a competitive advantage and increase earnings. However, reducing operating expenses can also compromise the integrity and quality of operations. Finding the right balance can be difficult but can yield significant operating expenses definition rewards. If a clothing export company decides to sell a building for $500,000, the expense incurred from the sale of the building is considered a Non-Operating Expense. It is not an operating expense since it does not arise from the core operations of the company.

What Is Included in Operating Expenses?

The parties intend that Lessee, at its option, furnish its own ordinary operating services including security protection for the Demised Premises. In the event Lessor is asked or required to provide these operating services, Lessee agrees to pay monthly estimated charges in advance subject to year end reconciliation. Lessee shall have the right to perform a review of Lessors operating expense calculations; and Lessor shall make all material available for Lessee’s inspection. Operating expenses are the costs of running a business, but they don’t include the costs of making or delivering a product or service.

On the cash flow statement, operating cash flow measures the cash coming into and out of the business from these operating activities. Cash comes in, for instance, from the sale of goods or services, and cash flows out to pay employees. Other classifications on the cash flow statement, like investing and financing activities, are considered non-OpEx.

What Are Operating Expenses? (With Examples)

Operating expenses do not include cost of goods sold or capital expenditures . A non-operating expense is a cost that is unrelated to the business’s core operations.