It is essential to track your costs of goods sold as it helps small business owners understand break-even points and profitability (making or losing money). This measures the direct cost incurred in producing and selling a business’s goods or services.ĭepending on the nature of a business, the time, labor, or any resource that goes into the manufacture of a product or delivery of a service is recorded under COGS. Repair costs for non-production facilities.Rent costs for non-production facilities.Operating Income = Gross Profit – Operating Expenses Examples of Operating Expenses You can use the Operating Expenses to calculate your operating income. On the cash flow statement, operating cash flow measures the cash coming into and out of business from these operating activities. These expenses are reflected on a company’s income statement. Operating expenses include rent, equipment, inventory costs, marketing, payroll (excluding labor for manufacturing), Insurance, Travel expenses, Utilities, and more. It is always necessary to balance the reduction of OPEX and maintaining business operations’ quality. Success in reducing operating expenses while staying competitive in a business niche often leads to an increase in earnings. The goal is always to keep OPEX low without reducing the capacity to compete or perform better than competitors. These are expenses incurred while carrying out day-to-day business operations and are almost necessary and unavoidable. Examples are rent expenses, interest expenses, the cost of goods sold, utility expenses, and more. Many types of expenditures are recorded in the expense accounts that highlight a company’s business operations and financial structure. While spending helps to grow your business, tracking what you spend is essential, and that’s where the Expense accounts play a vital role.Įxpense accounts keep records of business expenditures incurred to generate revenue and ensure continuity and stability within an accounting period – a month, quarter, or year.

“You have to spend money to make money” is everyday phrase entrepreneurs use. What are Expense Accounts in accounting? 4 min read Reading Time: 3 minutes

Operating expense vs cogs