Psst! Short on time? Talk to someone now and get your answers quicker!
We’ve got a new look! Read the story behind Chargebee’s new brand and positioning
Operating Expenses, also known as OpEx, are not related to the production of a product (Ex: Cost of goods sold). These expenses affect the income and the cash flow of a business. So, operating expenses are recorded in the Income Statement and the Cash Flow Statement of a business.
Income Statement - Also known as Profit & loss statement, this financial statement focuses on the revenues (operating and non-operating), expenses (primary and secondary activity), gains, and losses. Operating expenses along with expenses incurred from production of the product are recorded under primary activity expenses.
Cash flow statement - A cash flow statement reports a company’s flexibility, liquidity, and overall financial performance. It is segmented into 3 parts: Operating, Investing, and Financial cash flows. Operating expenses along with expenses incurred from production of the product are recorded under Cash flows from operating activities.
Salary/wages paid to full-time staff are considered operating expenses. Whereas, the cost of hiring labor, and outside wage payments for producing a product is calculated under Cost of Goods Sold.
Regular business expenses like rent, utilities, etc. that are incurred while securing new business aren’t considered operating expenses.
For MNCs and businesses of massive scale, it’s impractical and nearly impossible to calculate the actual operating expenses. It is usually shown as a projection when doing budgets for the next fiscal year.