Operating expenses are costs associated with the management of the organization and its activities for the realization of the produced (supplied) products. Simply put, it's the cost of doing business.

The types of operating expenses

The most common article for these expenses is the payroll, sometimes with the largest volume of total expenditure of the organization. Other articles that may also be included in the list of operating expenses, are presented advertising and marketing expenses, stationery, utility bills, expenses on acquisition of raw materials, license fees and legal services costs of research activities.

Depreciation, reflecting the fall in the value of capital assets over time should also be attributed to operating expenses. In the case of, for example, if the vehicle or industrial equipment will eventually wear out and their residual value is lower than the original, the difference is charged to expenses as depreciation. This article is considered to be operating costs if the assets used by the organization in operating activities.

The difference in operating costs from capital

It is also important to note that one-time costs related to the conduct of business, generally relate to capital expenditures. For example, this may be the purchase of new equipment when the old equipment is already fully depreciated.

Capital and operating expenditure share is mainly due to the fact that the management of the company and potential investors so you can get more information about where to spend the money before profits.

Obtaining and using information about the dynamics of operating expenses

All publicly traded firms and non-profit organizations must include in their annual reports information about the operating costs. Such information is usually accompanied by financial charts that compare operating expenses for the current calendar year operating expenses from last year. It gives a clear picture of the dynamic changes of costs over an extended period of time.

Management accounting and the use of specialized software for financial calculations – these are the most common ways of obtaining necessary information about the dynamics of operating expenses.

The financial position of any firm in uncertain market conditions never remain stable. Therefore, if the amount of operating expenses from year to year will vary significantly, especially in the upward direction, the management organization must be ready to explain to investors and lenders about the reasons for them so disturbing phenomena. The availability of detailed information help to avoid unnecessary action on their part, and to determine the causes of data trends, which is necessary for solving the problems of rising costs.