What Is the Difference Between Operating & Non-Operating Expenses?

by W D Adkins, Demand Media

Not all of the costs a business incurs relate to running the business itself. Businesses also have non-operating expenses and perhaps some non-operating revenue as well. When you prepare an income statement for a business, it is good accounting practice to distinguish between operating and non-operating expenses and list them separately.

Operating Expenses

Operating expenses are the costs a business incurs as part of its regular business activities, not including the cost of goods sold. These costs include administrative expenses such as office supplies and salaries for administrative personnel. Commissions and advertising are examples of sales expenses. You also have general operating expenses such as rent and utilities.

Non-Operating Expenses

Some business expenditures are incurred for reasons that don’t involve normal business operations. One example of a non-operating expense is interest on borrowed money. Non-operating expenses also include one-time or unusual costs. The expenditure required for a business reorganization or to pay expenses due t a lawsuit are examples. Charges for obsolescence of equipment or currency exchange are also non-operating expenses.

Income Statement

Operating and non-operating expenses are listed in different sections of a firm’s income statement. At the top the income statement, the cost of goods sold is subtracted from revenues to find the gross profit. Operating expenses are listed next and are subtracted fro the gross profit. The amount remaining after all operating expenses are subtracted is called operating income. The next section lists non-operating revenues and expenses. Non-operating revenues such as interest earned are added to the operating income and non-operating expenses are subtracted. The final figure, often called the bottom line, is the business’s net income.


It is entirely possible for a company to be running a sound operation and still incur unusual expenses that aren’t likely to recur. These one-time expenses may mask a basically good performance. When you separate operating and non-operating expenses on the income statement, it allows managers and investors to better assess the actual performance of a business. Organizing an income statement in this way also allows you to monitor non-operating expenses and insure that any problems they represent, such as high interest payments for borrowed funds, are brought to the attention of management.

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