What is Operating Expense?

An operating expense is a cost that a business has from its regular operations. It is often called OpEx and includes expenses like rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds for research and development.

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Operating expenses refer to the expenses incurred by a company during its regular operational activities. These activities are the necessary tasks that need to be carried out on a daily basis in order to run the business and generate income.

The costs of running a company can vary depending on its activities. Different industries may classify certain activities and expenses as operational while others may not. It is crucial to recognize this difference because it affects the tax deductibility of operating expenses. Some typical examples of operating expenses are:

  • Rent
  • Salaries and wages
  • Accounting and legal fees
  • Bank charges
  • Sales and marketing fees
  • Office supplies
  • Repairs
  • Utilities expenses
  • Cost of goods sold

Managing Operating Expense

Management needs to figure out how to cut costs without hurting the company’s competitiveness.

Most businesses need to spend money on operating expenses. Some companies lower these costs to be more competitive and make more money. But cutting operating expenses too much can hurt the quality of work. It’s hard to find the right balance, but it’s worth it in the end.

An income statement is used to monitor a company’s income and expenses during a specific time frame in order to assess its profitability. Expenses in income statements are usually divided into six categories: cost of goods sold, selling, general, and administrative costs, depreciation and amortization, other operating expenses, interest expenses, and income taxes.

Operating expenses are all expenses except interest expenses and income taxes when calculating operating income from an income statement.


Operating expenses are the costs incurred by a company in its day-to-day operations. These expenses are essential for running the business and generating revenue. They can be either fixed or variable. Generally, operating expenses are tax deductible if the company operates with the intention of making a profit, the expenses are well-known, and they are necessary for the business.