Operating expenses are those expenses which are incurred in normal business activities or core business operation on daily basis but not directly associated with the production. Operating expense starts after the stage of Cost of goods Sold (COGS) and end before the non-operating expense in the Income Statement. It is cost of running a product, business or system. Operating Expenses also known as Operating Expenditure, Operation Expense, Operational Expenditure, OPEX.

Operating expense is cost of operation which turns the inventory into finished goods or throughput. Therefore it is non-manufacturing expense.

There are two common condition to consider one expense as operating expense. Conditions are First, must not part of Cost of Goods Sold (COGS) & Second, expense incurred from day to day business activities. Mainly General and Administration Expense and Selling and Distribution expense is treated as operating expense.

List of Operating Expense are
Payroll / Salary & Wages
Hire and leasing
Sales Commission
Employee benefit
Office Supplier like telephone, page
Contribution and donation
Depreciation and amortization
Travelling expense (not for private purpose)
Rent, Repair and Taxes
Accounting Expenses
Licence Fee, Attorney Fee, Legal Fee
Office Expense
Management Fees

Operating expense is a vital part of the income statement. Management want to reduce the operation expense without hamper the normal business activities. If management can reduce operation expense without effect the quality of business operation, business will able to gain more profit. In this discussion market competition plays important roles.
Operating expense is also important to calculate the Operation Income. Operation income uses the useful toll for the investors. Operating income needed to calculate the Economic Value Added.

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Pijush Roy, Founder & Author of "Share Your Knowledge", is a young freelance blogger, a reader, a painter, .....read more