Company’s biggest problem is how to manage and control the expenses so that expenses do not overshadow the revenues generated by the company as companies who cannot manage their expenses in a prudent way will eventually fail as no company can run for long having more expense than revenue. The expenses incurred by the company can be of two types that are operating expenses and non-operating expenses, in order to have a clear understanding about both terms one should look at differences between operating and non-operating expenses –
Operating Expenses Vs Non Operating Expenses
Meaning
Operating expenses are those expenses which company incurs for carrying out the day to day activities of the company although it does not include those activities which are related to production or manufacture of goods. In simple words, these costs are different from manufacturing costs while non-operating expenses are those expenses which have no relation with the business of the company, in simple words these expenses are unrelated with main activity of the business.
Example
Salary paid to office staff and not factory staff, advertising expenses, selling expenses, rent paid for the office building and other such expenses are some of the examples of operating expenses done by the company. Loss on sale of assets, loss due to speculative activities are done by the company in capital and currency markets, insurance amount paid for insurance of various assets of the business and so on are some of the examples of non operating expenses.
Frequency of Expense
Operating expense is recurring in nature implying that these expenses have to be paid by the company every month while as far as a non-operating expense is concerned they do not happen that frequently implying that these type of expenses happen once or twice in a year.
Predictability
In case of operating expenses, a company can predict the amount as well as the date on which these expenses will happen as these expenses can be predicted with reasonable accuracy but as far as non-operating expenses are concerned one cannot predict when these expenses will happen also the amount of these expenses is also uncertain. In simple words when it comes to the predictability of expenses than it is much easier to predict operating expenses than predicting non-operating expenses.
Sequence of Deduction
Operating expenses are deducted first from profit and then non operating expenses are deducted since non-operating expenses do not happen often anyone analyzing the profit and loss statement should concentrate on net profit after operating expenses and before non-operating expenses as net profit after operating expenses signifies the operational efficiency of the company.
As one can see from the above differences that both operating expenses and non-operating expenses are different from each other and that is the reason why companies should monitor both expenses separately in order to have a better idea whether the total expenses of the company are rising due to operating expenses or due to non-operating expenses.