← Back to Glossary

Operating Expense (OPEX)

What is OPEX?

Operational expense (OPEX) is the cost that a company incurs in order to run its daily activities. OPEX is summarized on a company's income statement and includes all the costs associated with operating a business such as rent, utilities, wages, insurance, etc.

The term “operations” refers to the processes involved in running a business. These can be divided into two categories: those that generate revenue for the company and those that do not. Revenue-generating activities include sales, marketing, customer service, product development, and distribution. Non-revenue generating activities include administrative functions, accounting, legal services, and human resources.

Examples of operating expenses

The different operating cost categories that can be found on an income statement include:

Rent – This is the amount paid by a tenant to lease space from an owner. The landlord typically covers the cost of building maintenance, taxes, and property insurance.

Utilities – Utility bills cover electricity, gas, water, and trash removal. They also include any other charges incurred by the utility provider. 

Payroll – Payroll is the process of paying employees their salaries. In addition to salary payments, employers must pay unemployment compensation, Social Security, Medicare, and workers' compensation on behalf of their employees.

Insurance – Insurance protects against loss or damage to property, liability, and medical care. Liability insurance pays for injuries caused by third parties while property insurance covers losses due to fire, theft, natural disasters, and more.

Advertising – Advertising helps businesses build brand recognition and increase sales. All initiatives that fall under marketing would be considered advertising expenses.

Office supplies – Any item that can be used and replenished in an office setting would be considered supplies. Examples include pens, pencils, paper, staplers, printers, fax machines, copiers, etc.

Inventory – Inventory is anything that a company owns but has not sold. Examples include raw materials, finished goods, and tools. Inventory is usually recorded on a balance sheet along with fixed assets. 

Depreciation – Depreciation is the reduction of the value of a fixed asset over time. Items that can be depreciated include computer equipment, machinery, office furniture, etc. 

Property taxes – Property taxes are the annual expenses made by a business to local governments for the right to operate within their boundaries. Taxes vary depending upon location.

Maintenance – Maintenance is the ongoing and unavoidable upkeep of a facility. This could include routine cleaning, repairs, building inspections, etc.

Travel – Travel expenses are all costs associated with moving people and/or things to different locations. Travel costs can include vehicle expenses, airfare, lodging, transportation services, etc.

Interest expense – Interest expense includes interest payments made to banks, credit unions, and other financial institutions. It also includes any fees charged by these institutions.

Other – Other expenses may include miscellaneous items such as postage, telephone, utilities, rent, etc.

Operating Expense (OPEX)

Related Content

No items found.
Vector background

Gain complete visibility with a 360° view of your business

Get started with Abacum today.

Hand icon svg cta