An operating expense is a day-to-day cost of running a business, such as rent, salaries and utilities, deducted in full in the period it is incurred.
Operating expenses are the ongoing costs of keeping the business running, rent, wages, utilities, insurance, marketing, office supplies, that are consumed within the period and deducted in full immediately, unlike capital expenditures that are spread over years.
On the income statement, operating expenses are subtracted from gross profit to reach operating profit. Controlling OpEx is central to profitability, and distinguishing a true operating expense from a capital cost determines whether you deduct it now or over time.
A company's monthly rent, staff wages and hydro bills are operating expenses, deducted in full each period. A new $20,000 server, by contrast, is capital expenditure deducted gradually.
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