Introduction
Those costs which are incurred to perform daily business activities are known as operating expenses such as staffing costs, marketing and advertising costs, rent, salaries etc. On the other hand, non-operating expenses refer to those costs that are not directly related to the day-to-day business activities such as depreciation, interest, restructuring costs etc. Operating expenses are predictable and they can be controlled by the management but non-operating expenses cannot be predicted and controlled by the management.
Difference Between Operating Expenses And Non-operating Expenses
The main dissimilarities or difference between operating expenses and non-operating expenses can be described as follows:
1. Meaning
Operating Expenses: All costs incur to perform daily business activities (not cost of good sold) such as salaries, administrative expenses, advertising, rent etc. are known as operating expenses.
Non-Operating Expenses: Those costs which are not related to direct business activities such as interest payment, depreciation, restructuring costs etc. are known as non-operating expenses.
2. Predictable Or Not
Operating Expenses: These costs are essential for smooth functioning of regular business operations. So, operating expenses are predictable costs.
Non-Operating Expenses: These costs are not predictable because non-operating expenses are not related to daily business activities.
3. Controllable Or Not
Operating Expenses: These are controllable costs. Management can minimize operating expenses by using cost control and cost reduction techniques.
Non-Operating Expenses: These are uncontrollable costs. So, management cannot minimize non-operating expenses.
4. Occurrence Frequency
Operating Expenses: These costs incur regularly (more frequently than non-operating expenses) because these are directly related to business operation.
Non-Operating Expenses: These costs do not incur regularly like operating expenses because these expenses are not related to business operation.
5. Record In Income Statement
Operating Expenses: These costs are recorded at the top (under cost of goods sold) while preparing income statement of the firm.
Non-Operating Expenses: These costs are recorded at the bottom of the income statement.
6. Examples
Operating Expenses: Salaries, operational expenses, rent, marketing costs, etc. are some examples of operating expenses.
Non-Operating Expenses: Interest payment, loss on sale of fixed assets, restructuring costs, depreciation amount etc. are some examples of non-operating expenses.
Operating Expenses Vs Non-operating Expenses
(Comparison Chart)
Basis
|
Operating Expenses
|
Non-Operating Expenses
|
Introduction
|
Costs that are directly related to daily business operation
|
Types of costs that are not related to daily business operation
|
Predictable
|
Yes
|
No
|
Controllable
|
Yes
|
No
|
Frequency
|
More
|
Less
|
Recording
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At the top of income statement
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At the bottom of income statement
|
Examples
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Administrative expenses, salaries, advertising etc.
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Depreciation, amortization, interest payment etc.
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Distinction Between Operating Expenses And Non-operating Expenses In Short
- Operating expenses are directly tied to daily business operations. But non-operating expenses are not directly involve in operational activities of the firm.
- Operating expenses affect the profitability of the company. Non-operating expenses does not impact the profitability.
- Operating expenses are predictable. On the other hand, non-operating expenses cannot be predicted.
- Operating expenses are posted on the top and non-operating expenses are posted on the bottom while preparing the income statement.
