What Are Operating Expenses? Definition and Examples

For instance, if the property is leased then the lessee and lessor split the depletion deduction. This is to determine the ways in which you can reduce such expenses while still remaining competitive in the market. The following is the income statement of Microsoft Inc for the year ended June 30, 2020. For this, you need to work out the costs of operating and owning the machinery. This eliminates the need for additional resources, such as office space and equipment, which can result in cost savings. According to recent studies, implementing environmentally-conscious practices has become increasingly important for consumers willing to pay more for sustainable products and services.

In other words, they do not include the cost of goods sold as an operating expense. Such a definition will be deficient when measuring a company’s operating income. Clearly, the calculation of operating income cannot omit the cost of goods sold. Overhead and operating expenses are two types of costs that businesses must incur to run their business. The difference between the two is the types of costs that are classified under them. Overhead costs are related to the general business, fairly fixed, and can be reviewed often to make adjustments.

Administrative expenses such as full-time staff salaries or hourly wages are considered part of a company’s operating expenses. The costs for hiring labor to produce a product are calculated separately under the cost of goods sold. Capital expendi