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Operating Expense: Definition and Meaning
Definition
An operating expense is a cost incurred through normal business operations that is not a direct cost of producing goods or services.
Why It Matters
Operating expenses are generally deducted from gross profit to calculate operating income. Monitoring these costs helps management assess overhead, efficiency, budgets, staffing, pricing, and profitability.
What is classified as an operating expense can vary by business. The key is to apply classifications consistently so management can compare results over time.
Example
Rent, administrative payroll, marketing, utilities, insurance, and office expenses may be operating expenses.
Related Terms
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