{"id":271852,"date":"2023-12-20T12:01:02","date_gmt":"2023-12-20T00:01:02","guid":{"rendered":"https:\/\/www.reckon.com\/nz\/?page_id=271852"},"modified":"2025-02-06T15:25:14","modified_gmt":"2025-02-06T03:25:14","slug":"operating-expenses","status":"publish","type":"glo","link":"https:\/\/www.reckon.com\/nz\/glossary\/operating-expenses\/","title":{"rendered":"What is an operating expense?"},"content":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; custom_padding_last_edited=&#8221;off|desktop&#8221; _builder_version=&#8221;4.27.2&#8243; custom_margin=&#8221;0px||0px||false|false&#8221; custom_padding=&#8221;0px||0px||false|false&#8221; custom_padding_phone=&#8221;0px||||false|false&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_row column_structure=&#8221;1_3,2_3&#8243; _builder_version=&#8221;4.27.2&#8243; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; width=&#8221;100%&#8221; custom_margin=&#8221;0px||0px||false|false&#8221; custom_padding=&#8221;0px||0px||false|false&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;1_3&#8243; module_class=&#8221;table-contents&#8221; _builder_version=&#8221;4.23&#8243; background_color=&#8221;#f4f4f4&#8243; custom_padding=&#8221;25px||25px||true|false&#8221; sticky_position=&#8221;top&#8221; sticky_limit_bottom=&#8221;section&#8221; sticky_position_tablet=&#8221;top&#8221; sticky_position_phone=&#8221;none&#8221; sticky_position_last_edited=&#8221;on|desktop&#8221; pac_dcm_carousel_specific_module_num=&#8221;0&#8243; border_radii=&#8221;on|24px|24px|24px|24px&#8221; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text _builder_version=&#8221;4.23&#8243; text_font=&#8221;||||||||&#8221; global_colors_info=&#8221;{}&#8221; background__hover_enabled=&#8221;on|desktop&#8221;][\/et_pb_text][\/et_pb_column][et_pb_column type=&#8221;2_3&#8243; _builder_version=&#8221;4.16&#8243; custom_padding=&#8221;|||&#8221; pac_dcm_carousel_specific_module_num=&#8221;0&#8243; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text admin_label=&#8221;Definition description&#8221; _builder_version=&#8221;4.27.4&#8243; header_2_font_size=&#8221;32px&#8221; header_2_font_size_tablet=&#8221;30px&#8221; header_2_font_size_phone=&#8221;26px&#8221; header_2_font_size_last_edited=&#8221;on|tablet&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p>An operating expense refers to the type of regular expenditure a business incurs while undertaking regular business operations.<\/p>\n<p>As a business owner, you need to get to terms with how operating expenses are classified, how they work, and why they\u2019re important for sound financial management.<\/p>\n<h2>Operating expenses (definition)<\/h2>\n<p>Operating expenses, or operating costs, are those regular and ongoing costs that your business pays the pursuit of creating revenue. Operating expenses are essential outgoings that are necessary to the day-to-day functioning of the business.<\/p>\n<p>Operating expenses can include:<\/p>\n<ul>\n<li>rent<\/li>\n<li>salaries and wages<\/li>\n<li>utilities<\/li>\n<li>insurance<\/li>\n<li>depreciation<\/li>\n<li>maintenance or repairs<\/li>\n<li>marketing and advertising<\/li>\n<li>taxes.<\/li>\n<\/ul>\n<h2>Operating expenses and cost of goods sold (COGS)<\/h2>\n<p>Importantly, operating expenses incurred in regular day-to-day business are separate from \u2018cost of goods sold\u2019 (COGS), which expenses that are incurred in the direct production of goods or services.<\/p>\n<h2>What is an operating profit?<\/h2>\n<p>By deducting operating expenses from a business\u2019s revenue, you can calculate its \u2018operating profit\u2019 or \u2018operating income\u2019.<\/p>\n<p>Calculating your operating profit from your operating expenses is invaluable in determining your business\u2019s profitability and ensuring continued financial health.<\/p>\n<p>(Generally, a business should be seeking to control and optimise operating expenses and boost operating profit with solid <a href=\"https:\/\/www.reckon.com\/nz\/glossary\/cash-flow\/\">cash flow<\/a> to improve its overall financial performance and stability.)<\/p>\n<h2>Operating expenses vs. capital expenditures<\/h2>\n<p>While an operating expense is tied to regular business operation costs and operating income, capital expenditures (CapEx) refer to long-term expenses and investments.<\/p>\n<p>Capital expenditures generally refer to the purchase, maintenance or upgrading of big-ticket items like:<\/p>\n<ul>\n<li>vehicles<\/li>\n<li>equipment<\/li>\n<li>machinery<\/li>\n<li>buildings<\/li>\n<li>land.<\/li>\n<\/ul>\n<p>[\/et_pb_text][et_pb_image alt=&#8221;Working Capital Definition&#8221; title_text=&#8221;Working Capital Definition&#8221; admin_label=&#8221;Image&#8221; _builder_version=&#8221;4.23.1&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_image][et_pb_text admin_label=&#8221;Definition description + related terms&#8221; _builder_version=&#8221;4.27.4&#8243; header_2_font_size=&#8221;32px&#8221; header_2_font_size_tablet=&#8221;30px&#8221; header_2_font_size_phone=&#8221;26px&#8221; header_2_font_size_last_edited=&#8221;on|tablet&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p><strong>See related terms<\/strong><br \/><a href=\"https:\/\/www.reckon.com\/nz\/glossary\/marginal-cost\/\">What is marginal cost?<\/a><br \/><a href=\"https:\/\/www.reckon.com\/nz\/glossary\/expense\/\">What is an expense?<\/a><br \/><a href=\"https:\/\/www.reckon.com\/nz\/glossary\/net-profit\/\">What is net profit?<\/a><\/p>\n<p>&nbsp;<\/p>\n<p>[\/et_pb_text][ba_social_share icon_bg=&#8221;#03002e&#8221; icon_padding=&#8221;10px|12px|10px|12px|true|true&#8221; layout=&#8221;classic&#8221; show_text=&#8221;off&#8221; btn_padding=&#8221;0px|0px|0px|0px|false|false&#8221; btn_bg_color=&#8221;RGBA(255,255,255,0)&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; custom_margin=&#8221;50px||||false|false&#8221; custom_padding=&#8221;25px||||false|false&#8221; custom_css_before=&#8221;    content: %22SHARE THIS%22;||    font-size: 16px;||    font-weight: 700;||    line-height: 22px;||    letter-spacing: 0em;||    text-align: center;||    color: #ff5447;||    margin-bottom: 10px;||    display: inline-flex;||    position: absolute;||    margin-top: 10px;&#8221; border_width_top_main=&#8221;1px&#8221; border_color_top_main=&#8221;#e4e4e4&#8243; border_radii_icon=&#8221;on|5px|5px|5px|5px&#8221; global_colors_info=&#8221;{}&#8221; custom_css_before_last_edited=&#8221;off|desktop&#8221;][ba_social_share_child _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;facebook&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;linkedin&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;email&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"<p><!--TOC-->An operating expense refers to the type of regular expenditure a business incurs while undertaking regular business operations. As a business owner, you need to get to terms with how operating expenses are classified, how they work, and why they\u2019re important for sound financial management. Operating expenses (definition) Operating expenses, or operating costs, are those [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":0,"menu_order":0,"template":"","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"class_list":["post-271852","glo","type-glo","status-publish","hentry"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.5 (Yoast SEO v27.5) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>What is an operating expense? | Accounting Glossary Terms<\/title>\n<meta name=\"description\" content=\"A small business companion in understanding the concept of operating expenses and why they\u2019re important for sound financial management.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.reckon.com\/nz\/glossary\/operating-expenses\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is an operating expense?\" \/>\n<meta property=\"og:description\" content=\"A small business companion in understanding the concept of operating expenses and why they\u2019re important for sound financial management.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.reckon.com\/nz\/glossary\/operating-expenses\/\" \/>\n<meta property=\"og:site_name\" content=\"Reckon NZ\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/reckonhq\/\" \/>\n<meta property=\"article:modified_time\" content=\"2025-02-06T03:25:14+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.reckon.com\/nz\/wp-content\/uploads\/2025\/01\/Short-Logo-copy.png\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"800\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:site\" content=\"@ReckonHQ\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/operating-expenses\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/operating-expenses\\\/\"},\"author\":{\"name\":\"Alex Neighbour\",\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/#\\\/schema\\\/person\\\/ea7ed2e05f191dfcd3729f7ef819ccdb\"},\"headline\":\"What is an operating expense?\",\"datePublished\":\"2023-12-20T00:01:02+00:00\",\"dateModified\":\"2025-02-06T03:25:14+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/operating-expenses\\\/\"},\"wordCount\":738,\"publisher\":{\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/#organization\"},\"inLanguage\":\"en-NZ\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/operating-expenses\\\/\",\"url\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/operating-expenses\\\/\",\"name\":\"What is an operating expense? 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