What are Operating Expenses? Definition and FAQs.

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What are Operating Expenses?

Operating Expenses are expenses incurred by a business through its normal operations such as rent, marketing, salaries, insurance, etc.

Operating Expenses are generally categorized into two parts:-

  • Selling, General, and Admin Expenses (SG&A)
  • Cost of Goods Sold (COGS)

Tax depreciation is not classified as any type of Operating Expense. SG&A includes marketing and research and development whereas COGS includes staff salaries.

FAQs

Q: How to calculate Operating Expenses?

A: There are two ways to calculate Operating Expenses:
1) Operating Expense = Salaries + Sales Commissions + Promotional & Advertising Cost + Rental Expense + Utilities
2) Operating Expense = Revenue – Operating Income – COGS

Q: What are non-operating expenses?

A: Expenses that cannot be linked back to the business’ key activities are called non-operating expenses. These may include losses caused due to some natural calamity, failed investments, etc.

Q: What is included in Operating Expenses?

A: Rent, Salaries, marketing, insurance, research and development funds, equipment, and inventory are all included in Operating Expenses.

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