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What is an operating expense?

An operating expense can be phrased as an expense that is incurred in the normal course of business that are not related to the product or service the business is selling. Basically, these are costs that are necessary to run the business and support the sale of the product or service the business is providing to customers. Operating expenses are a period cost and not a product cost. As you can see in the visual below, operating expenses are subtracting from gross profit to calculate operating income:

Operating expenses can be further broken down into three main types of expenses: Selling expenses, general expenses, and administrative expenses.

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