What is included in operating expenses?

Operating expenses are the costs that a company incurs through its normal business operations. This includes a variety of expenses such as rent, utilities, salaries, and cost of goods sold, which are essential for the day-to-day functioning of the business. These expenses are pivotal for producing and delivering goods or services and are vital for generating revenue.

The reason this choice is valid is that operating expenses directly relate to the operations that occur regularly and are necessary for running the core business functions. They are recorded on the income statement and are deducted from gross profit to calculate operating profit, indicating the efficiency of the company in managing its operational costs.

In contrast, costs related to asset sales typically fall under non-operating activities as they pertain to the sale of long-term assets rather than daily operations. Interest expenses and debt repayments are financial activities rather than operational and do not directly relate to the core functions of the business. Revenue generated from core operations, while important, describes inflow rather than outflow, and thus wouldn't be categorized as an expense.

By focusing on the recurring nature of operating expenses, we gain a clearer understanding of what supports the fundamental activities of a business entity.