What are Operating Expenses?

Published by Thomas Herold in Accounting, Economics

The term 'Operating Expenses' is included in the Accounting edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

In the world of business and corporations, operating expenses is the term that pertains to the continuous costs of running a business. This makes operating expenses the expenses for everything happening behind the scenes. Such operating costs include any expenses incurred for the literal operation of the business.

You occasionally see the words operating expenses written as OPEX. This is especially true in internal memos and documentation that are relevant to the earnings of a company. The most frequent operating expenses are those having to do with employee benefits and salaries. These commonly make up the biggest individual expenses for a corporation. Other operating costs could be office supplies, marketing budgets, licensing and legal fees, raw material expenses, costs of research and development, accounting fees, and office utilities.

Another key operating expense is depreciation. Depreciation proves to be the quantity of value that diminishes in an asset over a period of time. This means that accounts can take equipment, vehicles, and other assets and subtract out the lower value off of the initial value to come up with depreciation as assets gradually lose value. This depreciation can be counted as an operating expense so long as the asset is still employed by the business in its operations.

Some expenses are deemed to be capital expenses instead of operating expenses. This is generally the case for single event expenses, like buying replacement equipment for completely depreciated existing equipment. This division of costs allows both the firm and its investors to have a more realistic snap shot of for what the money is used before it is able to be put to profits. When you are self employed, then you may count both CAPEX and OPEX as business expenses.

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Operating expenses have to be included in the annual reports of both not for profit outfits and corporations that are publicly traded. This kind of information commonly comes with charts that compare the operating expenses of several years. In this way, a reader is able to obtain a good understanding of how the expenses are progressing with time.

By tracking operating expenses in an ongoing fashion all year long, the information is easily at hand for a company to include it in their reports. Accountants, or alternatively programs that do financial management, are generally used to help with operating expense tracking and calculation. When operating expenses go up and down every year, investors will want to know why this is the case. Detailed records provide good explanations for the final numbers to satisfy the questioning parties. Corporate treasurers are generally responsible for answering these queries and coming up with answers.

The term 'Operating Expenses' is included in the Accounting edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.