View source for Finance:Operating expense

{{Short description|Ongoing cost for running a product, business, or system}}
{{Accounting}}

An '''operating expense'''{{efn|Also known as operating expenditure, operational expense, operational expenditure or opex.}} is an ongoing cost for running a product, business, or system.<ref>David Maguire, The business benefits of GIS : an ROI approach, 1st ed. (Redlands  Calif.: ESRI Press, 2008), http://roi.esri.com/. {{ISBN|978-1-58948-200-5}}</ref> Its counterpart, a [[Finance:Capital expenditure|capital expenditure]] (capex), is the cost of developing or providing non-consumable parts for the product or system. For example, the purchase of a [[Engineering:Photocopier|photocopier]] involves capex, and the annual paper, [[Engineering:Toner|toner]], power and maintenance costs represents opex.<ref>Aswath Damodaran, Applied Corporate Finance: A User’s Manual (John Wiley and Sons, 1999), http://pages.stern.nyu.edu/~adamodar/New_Home_Page/AppldCF/derivn/ch5deriv.html. {{ISBN|978-0-471-33042-4}}</ref> For larger systems like businesses, opex may also include the cost of workers and facility expenses such as rent and utilities.

==Overview==
In business, an operating expense is a day-to-day expense such as [[Finance:Sales|sales]] and [[Social:Business administration|administration]], or research & development, as opposed to production, costs, and pricing. In short, this is the [[Finance:Money|money]] the business spends in order to turn [[Social:Inventory|inventory]] into [[Finance:Throughput (business)|throughput]].

On an [[Finance:Income statement|income statement]], "operating expenses" is the sum of a business's operating expenses for a period of time, such as a month or year.

In [[Finance:Throughput accounting|throughput accounting]], the [[Social:Cost accounting|cost accounting]] aspect of the [[Theory of constraints|theory of constraints]] (TOC), operating expense is the [[Finance:Money|money]] spent turning [[Social:Inventory|inventory]] into [[Throughput|throughput]].<ref>Goldratt, E. M., & Cox, J. "The Goal: A Process of Ongoing Improvement" (Rev. ed.). (1986)., p. 61.</ref> In TOC, operating expense is limited to costs that vary strictly with the quantity produced, like raw materials and purchased components. Everything else is a [[Finance:Fixed cost|fixed cost]], including labour (unless there is a regular and significant chance that workers will not work a full-time week when they report on their first day).

In a real estate context, operating expenses include costs associated with the operation and maintenance of an income-producing property.

Operating expenses include:
       
* salary and wages
* accounting expenses
* [[Finance:License|license]] fees
* maintenance and repairs, such as snow removal, trash removal, janitorial service, pest control, and lawn care
* advertising
* office expenses
* supplies
* attorney fees and legal fees
* utilities, such as telephone
* insurance
* property management, including a resident manager
* property taxes
* travel and vehicle expenses
:'''Travel expenses''' are defined as those incurred in the event of travel required for professional purposes.
::For this purpose, “travel” is defined as the simultaneous absence from the [[Engineering:House|residence]] and from the regular place of employment. It is prompted by professional or company purposes and likely does not concern the traveler’s private life, or concerns it only to a small degree. Travel expenses include travel costs and fares, accommodation expenses, and so-called additional expenses for meals.
* leasing commissions

==See also==
* [[Finance:Capital expenditure|Capital expenditure]] (capex)
* [[Total cost of ownership]] (TCO)
* [[Finance:Capital budgeting|Capital budgeting]]
* Freight expense
* [[Finance:Operating cost|Operating cost]]
* [[Finance:Overhead (business)|Overhead (business)]]

==Notes==
{{notelist}}

==References==
{{reflist}}

==Further reading==
* Harry I. Wolk, James L. Dodd, Michael G. Tearney. ''Accounting Theory: Conceptual Issues in a Political and Economic Environment'' (2004). {{ISBN|0-324-18623-1}}.
* Angelico A. Groppelli, Ehsan Nikbakht. ''Finance'' (2000). {{ISBN|0-7641-1275-9}}.
* Barry J. Epstein, Eva K. Jermakowicz. ''Interpretation and Application of International Financial Reporting Standards'' (2007). {{ISBN|978-0-471-79823-1}}.
* Jan R. Williams, Susan F. Haka, Mark S. Bettner, Joseph V. Carcello. ''Financial & Managerial Accounting'' (2008). {{ISBN|978-0-07-299650-0}}.1
* Goldratt, E. M., & Cox, J. (1986). The Goal: A Process of Ongoing Improvement (Rev. ed.). {{ISBN|978-0-88427-178-9}}.

{{accounting nav}}
{{DEFAULTSORT:Operating Expense}}
[[Category:Accounting terminology]]

{{Sourceattribution|Operating expense}}