Both operating expenses and cost of goods sold (COGS) are expenditures that are incurred by running a business business. However, they measure different ways in which resources are spent.
Operating expenses are expenses that are not directly tied to the production of goods or services. Examples of operating expenses include: rent, utilities, office supplies, marketing, payroll, and insurance costs. A business must keep operating expenses under control without adversely affecting the businesses ability to generate revenue.
Cost of goods sold is the direct costs tied to the delivery of goods and services. COGS represents the business expenses that are directly incurred because a transaction has taken place.
Examples of COGS include:
When an profit and loss statement is generated, cost of goods sold and operating expenses are shown as separate line items subtracted from total revenue. If you want to know if an expense falls under COGS, ask; "Would this expense have been an expense even if no sales were generated?"