Operating expenses of the business are those expenses incurred while performing the principal business activity and the list of such costs includes production expenses like direct material and labor cost, rent expenses, salary and wages paid to administrative staff, depreciation expenses, telephone expenses, traveling expenses, sales promotion expenses and other expenses that are of routine nature.
List of Operating Expenses
Operating expenses are the expenses which are incurred by the business in the normal course of its operations. Operating Expense includes cost related to the production of goods, however, finance cost such as the interest expenses is always excluded from the operating expenses as they are not related to the day to day operations of the business.
Other costs that are excluded from the operating cost include auditor fees, debt replacement cost, bank fees etc.
Every company always tries to reduce the burden of operating expenses as much as possible because this is one of the deciding factors of the firm’s ability to compete with its competitors.
The list of Operating Expenses is sub-divided into two parts – Selling, General and Admin Expense (SG&A) and Costs of Goods Sold.
List of Operating Expense under SG&A Expenses
These costs are part of operating expenses because they are incurred due to the main business activities. These expenses include telephone expense, traveling expense, utility expense, sales expense, Rent, repair & maintenance, bank charges, legal expenses, office supplies, insurance, salaries and wages of administrative staff, Research expenses etc.
Below is the list of 13 Operating expenses that come under Selling, General and Admin costs.
#1- Telephone Expenses
These are the cost incurred on landline or mobile phones. Generally, monthly bills are payable for them. Many Companies also reimburse their employees for their telephone expenses. Depending upon the company policy telephone expenses are charged to Profit and loss account.
#2 – Travelling Expenses
These are the expenses which are paid by the company for their staff during their official visit. The staff can travel to meet customers, for some supplies or any other event. In such a case either company pays staff expense directly or reimburses the staff after their visit. These expenses are charged in the P&L as traveling expense.
#3 – Office Equipment and Supplies
These are the expenses which are incurred for the purpose of purchasing office supplies used on a day to day basis in the office. For example, pen, papers, clippers etc.
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#4 – Utility Expenses
The expenses which are related to payment of utility bills of the company like expenses of water and electricity that generally are used for the daily operating activities are the utility expenses and are charged to the profit and loss account of the company.
#5 – Property Tax
The property tax paid by the company on its properties forms the part of the operating expenses of the company.
#6 – Legal Expenses
These operating expenses which are incurred for using the legal services by the company. These are charged in the profit and Loss account of the company under the head legal expenses.
#7 – Bank Charges
The fees charged by the banks for the general transactions going in the business are known as the bank charges. For example transaction charges for cheque fees etc.
#8 – Repair and Maintenance Expenses
The Repair and maintenance operating expense on the asset used for production like repairing requirements of machines, or the vehicles in the company.
#19 – Insurance Expenses
The expenses which are incurred for taking insurance of health care, general insurance of staff and fire insurance are to be charged to the profit and loss account under the head insurance expenses.
#10 – Advertising Expenses
This operating expense related to the promotion and advertising forms part of the operating expenses of the company as they are done for increasing the sales. The same however does not include the trade discount which the company gives to its customers.
#11 – Research Expenses
This type of operating expenses which are incurred for research of the new products are treated as revenue expenses and should not be capitalized. These are charged to Profit and Loss account
#12 – Entertainment Expenses
The entertainment expenses incurred for the sales and related support activities forms the part of the operating expenses of the company.
#13 – Sales Expenses
This operating expenses that are incurred for the purpose of increasing sales are part of the sales expenses. For example, a discount on sales and the sales commission expenses etc.
List of Operating Expense under COGS
Cost of the Goods Sold is the Costs which are incurred for the Goods or products sold by the organization during a specific time period. The cost which is considered while calculating the cost of goods sold refers to the cost which is directly attributable to goods or products sold by the company. This includes cost related to direct labor, direct overheads, and direct material. The cost should be matched with corresponding revenues which the entity has recognized in the income statement.
Below is the list of 6 Operating expenses that come under Cost of Goods Sold.
#1 – Freight in Cost
Freight-in is the shipping cost which buyer has to pay for purchasing the merchandise when terms are the FOB shipping point. The expense related to freight-in is considered as part of the cost of merchandise and in case if the merchandise is not yet sold then the same should be considered in the inventory.
#2 – Freight out Cost
Freight out is the cost of transportation which is associated with the delivery of the goods from the place of the supplier to customers and the same should be included within cost of the goods sold classification in the income statement.
#3 – Product Cost
These are the costs which are incurred to make the product in the condition to sell it to customers. The product cost includes cost related to direct labor, direct overheads and direct material
#4 – Rental Cost
Rental Cost which is paid for the properties used for providing the support related to the production. The Salaries, wages, and other benefits are given to the staff related to the production of goods.
#5 – Depreciation Expenses
The reduction in the value of the asset due to wear and tear while using at the time of production is the depreciation expense and forms the part of the cost of goods sold.
#6 – Others Costs
These are incurred which is directly attributable to production form part of the cost of goods sold.
This has been a guide to the list of Operating Expense. Here we discuss the list of items included in Operating Costs (including SG&A and COGS) along with practical examples. You may learn more about accounting from the following articles-