List of Operating Expenses
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.
Other costs excluded from the operating cost include auditor fees, debt replacement cost, bank fees, etc.
Every company tries to reduce the burden of operating expenses as much as possible. It 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 incur due to the main business activities. These expenses include telephone expense, traveling expense, utility expenseUtility ExpenseUtilities Expenses are the prices incurred by a Company for the usage of utilities like sewage, electricity, waste disposal, water, broadband, heating, & telephone. These are included as operating expenses in the Company’s income sheet. , 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 a landline or mobile phone. 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 the Profit and loss account.
#2 – Travelling Expenses
These are the expenses that 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 them expenses directly or reimburses it after their visit. These expenses are charged in the P&L as traveling expenses.
#3 – Office Equipment and Supplies
These are the expenses that incur to purchase office supplies for use on a day to day basis in the office. For example, pens, papers, clippers, etc.
#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 activitiesOperating ActivitiesOperating activities generate the majority of the company's cash flows since they are directly linked to the company's core business activities such as sales, distribution, and production. are utility expenses. They 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 part of the operating expenses of the company.
#6 – Legal Expenses
These incur for using the legal services by the company. These charge to 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 businessTransactions Going In The BusinessA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements. 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 a production like repairing requirements of machines, or the vehicles in the company.
#19 – Insurance Expenses
Such expenses incur for taking insurance of health care, general insurance of staff, and fire insurance. The company charges these to the profit and loss account under the head insurance expensesInsurance ExpensesInsurance Expense, also called Insurance Premium, is the amount a Company pays to obtain an insurance contract for covering their risk from any unexpected catastrophe. You can calculate it as a fixed percentage of the sum insured & it is paid at a daily pre-specified period. .
#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 form part of the operating expenses of the company.
#13 – Sales Expenses
These operating expenses that are incurred to increase 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 SoldCost Of The Goods SoldThe cost of goods sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company. is the Costs which are incurred for the Goods or products sold by the organization during a specific 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. It includes costs related to direct labor, direct overheads, and direct materialDirect MaterialDirect materials are raw materials that are directly used in the manufacturing process of a company's goods and/or services and are an essential component of the finished goods manufactured.. 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 the Cost of Goods Sold.
#1 – Freight in Cost
Freight-in is the shipping cost that the 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 the 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. It is associated with the delivery of the goods from the place of the supplier to customers. And the same should be included within the cost of the goods sold classification in the income statement.
#3 – Product Cost
These are the costs that 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 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 asset value due to wear and tear while using at the time of production is the depreciation expense. It 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 article has been a guide to the list of Operating Expenses. Here we discuss the items included in Operating Costs (including SG&A and COGS) along with practical examples. You may learn more about accounting from the following articles-