Operating expense

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An operating expense, operating expenditure, operational expense, operational expenditure or OPEX is an ongoing cost for running a product, business, or system. Its counterpart, a capital expenditure (CAPEX), is the cost of developing or providing non-consumable parts for the product or system. For example, the purchase of a photocopier is the CAPEX, and the annual paper, toner, power and maintenance cost is the OPEX. For larger systems like businesses, OPEX may also include the cost of workers and facility expenses such as rent and utilities.

In business, an operating expense is a day-to-day expense such as sales and administration, or research & development, as opposed to Production, costs, and pricing. In short, this is the money the business spends in order to turn inventory into throughput. Operating expenses also include depreciation of plants and machinery which are used in the production process.

On an income statement, "operating expenses" is the sum of a business's operating expenses for a period of time, such as a month or year.

In throughput accounting, the cost accounting aspect of Theory of Constraints (TOC), operating expense is the money spent turning inventory into throughput. In TOC, operating expense is limited to costs that vary strictly with the quantity produced, like raw materials and purchased components. Everything else is a fixed cost, including labour unless there is a regular and significant chance that workers will not work a full-time week when they report on its first day.

In a real estate context, operating expenses are costs associated with the operation and maintenance of an income producing property. 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
• supplies
• attorney fees and legal fees
• utilities, such as telephone
• insurance
• property management, including a resident manager
• property taxes
• travel and vehicle expenses

Travel expenses are defined as those incurred in the event of travel required for professional purposes.

For this purpose, “travel” is defined as the simultaneous absence from the residence and from the regular place of employment. It is prompted by professional or company purposes and likely does not concern the traveller’s private life, or concerns it only to a small degree. Travel expenses include travel costs and fares, accommodation expenses, and so-called additional expenses for meals. For the self-employed (contractors and freelancers), the expenses constitute business expenses.

• leasing commissions
• salary and wages
• raw materials

See also

• Capital expenditure (CAPEX)
• Capital budgeting
• Operating cost

References

• Harry I. Wolk, James L. Dodd, Michael G. Tearney. Accounting Theory: Conceptual Issues in a Political and Economic Environment (2004). ISBN 0324186231.
• Angelico A. Groppelli, Ehsan Nikbakht. Finance (2000). ISBN 0764112759.
• Barry J. Epstein, Eva K. Jermakowicz. Interpretation and Application of International Financial Reporting Standards (2007). ISBN 9780471798231.
• Jan R. Williams, Susan F. Haka, Mark S. Bettner, Joseph V. Carcello. Financial & Managerial Accounting (2008). ISBN 9780072996500.

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