Treating Operating Expenses in your books
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.