Operating Expenses and Non Operating Expenses
Income Statement
Operating expenses, non operating expenses and net income are three key areas of the income statement.
An operating expense is the ongoing cost of running a product, business, or system. Its counterpart, a capital expenditure, or non operating expense, is the cost of developing or providing non-consumable parts for the product or system.
For example, the purchase of a photocopier is a capital expenditure. Paper, toner, power, and maintenance costs represent operating expenses. In business, operating expenses are day-to-day expenses such as sales and administration. In short, this is the money the business spends in order to turn inventory into throughput. For larger businesses, operations may also include the cost of workers and facility expenses such as rent and utilities.
On an income statement, operating expenses include:
- accounting expenses
- license fees
- maintenance and repairs, such as snow removal, trash removal, janitorial service, pest control, and lawn care
- advertising
- office expenses and supplies
- attorney legal fees
- utilities
- insurance
- property taxes
- travel and vehicle expenses
- leasing commissions
- salary and wages
- raw materials
Everything else is a fixed cost, including labor. In real estate, operating expenses comprise costs associated with the operation and maintenance of an income-producing property, including property management fees, real estate taxes, insurance, and utilities. Non operating expenses include loan payments, depreciation, and income taxes.
Net Income
The income statement is used to assess profitability by deducting expenses from revenue. When net income is positive, it is called profit. When negative, it is a loss. Net income increases when assets increase relative to liabilities. At the same time, other assets may decline in value and liabilities may increase.