Operating expenses refer to the costs incurred by a company in the day-to-day operations of its business. These can include costs such as employee salaries, rent, utilities, and materials. Operating expenses do not include costs associated with long-term investments or financing, such as interest expenses or depreciation. In financial statements, operating expenses are typically listed separately from cost of goods sold and are subtracted from revenue to calculate operating income.
Categories of operating expenses
There are several categories of operating expenses that companies typically incur. Some common categories include:
- Salaries and wages: This includes the cost of employee salaries, bonuses, and benefits.
- Rent and utilities: This includes the cost of renting or leasing office space, as well as utility costs such as electricity and water.
- Materials and supplies: This includes the cost of raw materials and other supplies needed to run the business.
- Marketing and advertising: This includes the cost of promoting the company's products or services, such as advertising and public relations expenses.
- Depreciation: This is the expense of assets over the time period, it is not a cash expense
- Insurance: This includes the cost of insuring the company's assets and employees.
- Travel: This includes the cost of business-related travel, such as airfare and lodging.
- Legal and accounting: This includes the cost of legal and accounting services.
- Other expenses: This includes miscellaneous expenses that do not fit into the other categories such as training, subscriptions, and memberships.
It's worth noting that the specific categories of operating expenses will vary depending on the type of business and industry.
Examples of operating expenses
Here are some examples of operating expenses that a company might incur:
- A retail store might have operating expenses such as rent for the physical location, utilities to keep the store running, and the cost of inventory to sell.
- A software company might have operating expenses such as employee salaries and benefits, office rent and utilities, and the cost of equipment and software licenses.
- A consulting firm might have operating expenses such as employee salaries and benefits, office rent and utilities, and the cost of travel for on-site consulting projects.
- A manufacturing company might have operating expenses such as employee salaries and benefits, rent for the factory, utilities to keep the factory running, and the cost of raw materials to manufacture products.
- A restaurant might have operating expenses such as rent for the physical location, utilities, cost of food ingredients, employee salaries and benefits.
- A e-commerce company might have operating expenses such as employee salaries and benefits, office rent and utilities, cost of warehouse and transportation for the products, marketing expenses.
It's worth noting that this is not an exhaustive list, and the specific operating expenses will vary depending on the type of business and industry.
|Operating expenses — recommended articles|
|Selling costs — Cost — Out-of-pocket expenses — Fixed capital — Types of services — Hard asset — Administrative cost — Types of customers — Noncurrent asset|
- Enache, L., & Srivastava, A. (2018). Should intangible investments be reported separately or commingled with operating expenses? New evidence. Management Science, 64(7), 3446-3468.
- Mun, S. G., & Jang, S. S. (2018). Restaurant operating expenses and their effects on profitability enhancement. International Journal of Hospitality Management, 71, 68-76.
- Harris, F. D. (2005). An economic model of US airline operating expenses (No. Rept-A-050004).