Operating expense definition

/

What is Operating Expense?

Operating expense is any expense associated with the general, sales, and administrative functions of an entity. This expense is not associated with production activities. The management team usually reviews these expenses through a budget variance reporting system or trend line analysis in order to spot any expense spikes that may require action.

Examples of Operating Expenses

Examples of operating expenses are as follows:

  • Administration compensation. For administrative staff, customer service, and non-production employees.

  • Administration rent or lease payments. For office space or retail locations.

  • Administration utilities. Includes electricity, water, heating, and internet.

  • Advertising and promotions. Includes the costs of digital ads, traditional media, and promotional events.

  • IT services. Includes the cost of IT support or cloud service fees.

  • Training and development. Includes the cost of workshops, certifications, and learning programs for employees.

Operating Expenses vs. Non-Operating Expenses

Operating expenses are needed to ensure that the core operations of a business function as intended. This differs from non-operating expenses, which are incurred in relation to anything outside of a firm’s core activities. Examples of non-operating expenses are gains or losses on asset sales, restructuring expenses, and lawsuit settlements.