An operating expense, operating expenditure, operational expense, operational expenditure or OPEX is an ongoing cost for running a product, business

Business

A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...

, or system . Its counterpart, a capital expenditure

Capital expenditure

Capital expenditures are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year...

 (CAPEX), is the cost of developing or providing non-consumable parts for the product or system. For example, the purchase of a photocopier

Photocopier

A photocopier is a machine that makes paper copies of documents and other visual images quickly and cheaply. Most current photocopiers use a technology called xerography, a dry process using heat...

 involves CAPEX, and the annual paper, toner

Toner

Toner is a powder used in laser printers and photocopiers to form the printed text and images on the paper. In its early form it was simply carbon powder. Then, to improve the quality of the printout, the carbon was melt-mixed with a polymer...

, power and maintenance costs represents OPEX. For larger systems like businesses, OPEX may also include the cost of workers and facility expenses such as rent and utilities.

In business

Business

A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...

, an operating expense is a day-to-day expense

Expense

In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...

 such as sales

Sales

A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....

 and administration, or research & development, as opposed to production, costs, and pricing

Production, costs, and pricing

The following outline is provided as an overview of and topical guide to industrial organization:Industrial organization – describes the behavior of firms in the marketplace with regard to production, pricing, employment and other decisions...

. In short, this is the money

Money

Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

 the business spends in order to turn inventory

Inventory

Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...

 into throughput

Throughput (business)

Throughput is the movement of inputs and outputs through a production process. Without access and assurance of a supply of inputs, a successful business enterprise would not be possible....

.

On an income statement

Income statement

Income statement is a company's financial statement that indicates how the revenue Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that...

, "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

Throughput accounting

Throughput Accounting is a principle-based and comprehensive management accounting approach that provides managers with decision support information for enterprise profitability improvement. TA is relatively new in management accounting...

, the cost accounting

Cost accounting

Cost accounting information is designed for managers. Since managers are taking decisions only for their own organization, there is no need for the information to be comparable to similar information from other organizations...

 aspect of the theory of constraints

Theory of constraints

The theory of constraints adopts the common idiom "A chain is no stronger than its weakest link" as a new management paradigm. This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the...

 (TOC), operating expense is the money

Money

Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

 spent turning inventory

Inventory

Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...

 into throughput

Throughput

In communication networks, such as Ethernet or packet radio, throughput or network throughput is the average rate of successful message delivery over a communication channel. This data may be delivered over a physical or logical link, or pass through a certain network node...

. 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

Fixed cost

In economics, fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead costs...

, 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

Real estate

In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...

 context, operating expenses include costs associated with the operation and maintenance of an income-producing property.

Operating expenses include:

• accounting expenses
• license
  License
  The verb license or grant licence means to give permission. The noun license or licence refers to that permission as well as to the document recording that permission.A license may be granted by a party to another party as an element of an agreement...
  
   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

House

A house is a building or structure that has the ability to be occupied for dwelling by human beings or other creatures. The term house includes many kinds of different dwellings ranging from rudimentary huts of nomadic tribes to free standing individual structures...

 and from the regular place of employment

Employment

Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...

. 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 meal

Meal

A meal is an instance of eating, specifically one that takes place at a specific time and includes specific, prepared food.Meals occur primarily at homes, restaurants, and cafeterias, but may occur anywhere. Regular meals occur on a daily basis, typically several times a day...

s. For the self-employed (contractor

Independent contractor

An independent contractor is a natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when...

s and freelancer

Freelancer

A freelancer, freelance worker, or freelance is somebody who is self-employed and is not committed to a particular employer long term. These workers are often represented by a company or an agency that resells their labor and that of others to its clients with or without project management and...

s), the expenses constitute business expenses.

• leasing commissions
• salary and wages
• raw materials

See also

• Capital expenditure
  Capital expenditure
  Capital expenditures are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year...
  
   (CAPEX)
• Capital budgeting
  Capital budgeting
  Capital budgeting is the planning process used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing...
  
  
• Freight expense
  Freight expense
  In accounting, the concept of a freight expense account can be generalized as a payment for sending out a product to a customer. It falls under the umbrella category of expenses and is treated like other expense accounts in relation to the accounting equation, however, under generally accepted...
  
  
• Operating cost
  Operating cost
  Operating costs can be described as the expenses which are related to the operation of a business, or to the operation of a device, component, piece of equipment or facility.-Business operating costs:...
  
  

Further reading

• Harry I. Wolk, James L. Dodd, Michael G. Tearney. Accounting Theory: Conceptual Issues in a Political and Economic Environment (2004). ISBN 0-324-18623-1.
• Angelico A. Groppelli, Ehsan Nikbakht. Finance (2000). ISBN 0-7641-1275-9.
• Barry J. Epstein, Eva K. Jermakowicz. Interpretation and Application of International Financial Reporting Standards (2007). ISBN 978-0-471-79823-1.
• Jan R. Williams, Susan F. Haka, Mark S. Bettner, Joseph V. Carcello. Financial & Managerial Accounting (2008). ISBN 978-0-07-299650-0.
• Goldratt, E. M., & Cox, J. (1986). The Goal: A Process of Ongoing Improvement (Rev. ed.). ISBN 978-0-88427-178-9.