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.