Definition
The financial accounting term operating expense is used to describe all of the costs associated with the ongoing operations of the company. Operating expenses appear on the company's income statement.
Explanation
Operating expenses, also known as OPEX, includes expenditures such as the cost of goods sold (direct labor, raw materials), as well as overheads such as selling, general and administrative expenses; research and development; property taxes; and office supplies.
The management of a company attempts to keep operating expenses as low as possible in order to maximize profits. Operating expenses can be considered the essential costs incurred by a company in order to keep the core business running.
Example
The table below demonstrates how operating expenses can appear on a company's income statement:
| Total Revenue | 29,611,000 |
| Cost of Goods Sold | (15,693,000) |
| Gross Profit | 13,918,000 |
| Operating Expenses | |
| Selling General and Administrative | (7,740,000) |
| Operating Income or Loss | 6,178,000 |
Related Terms
income statement, cost of goods sold, selling general and administrative expenses, discontinued operations
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