What are operating expenses?

Operating expenses refer to the routine costs a business incurs as part of its day-to-day operations. These expenses are essential for maintaining the functioning of the company and include expenses like rent, utilities, salaries, and office supplies. The correct choice identifies operating expenses as the daily costs of running a company, specifically excluding Cost of Goods Sold (COGS), which pertains to the direct costs associated with the production of goods sold by the company.

This distinction is crucial because COGS is not considered an operating expense; it specifically relates to the costs of manufacturing products. Operating expenses are broader and cover various aspects of general business maintenance. Non-recurring expenses, such as equipment purchases, don’t fit the definition of operating expenses since they are not regular costs but rather one-time investments. Similarly, while expenses related to acquiring new customers might be important, they do not capture the overall recurring costs of running the business on a daily basis. Therefore, recognizing that operating expenses encompass the regular, necessary costs of running a business—excluding COGS—illustrates the importance of managing these expenditures for financial health.