Operating expenses are costs that a company incurs as a result of its core business operations, such as rent, wages, and utilities.
Non-operating expenses, on the other hand, are costs that are not directly related to the company’s main business activities, such as interest on loans, taxes, and depreciation.
In terms of cash flow, operating expenses are included in the operating activities section of the cash flow statement, which shows the cash inflows and outflows related to a company’s core business operations.
Non-operating expenses, including interest expenses, are typically included in the financing activities section of the cash flow statement, which shows the cash inflows and outflows related to borrowing, repaying debt, and issuing equity.
Interest expense is a non-operating expense, and therefore, it is included in the financing activities section of the cash flow statement.
This distinction is important for several reasons. Firstly, understanding the source and use of cash is essential for managing a company’s financial position effectively.
By separating operating and financing activities in the cash flow statement, analysts and investors can assess a company’s ability to generate cash from its core business operations
interest expense can have a significant impact on a company’s financial performance and ability to manage debt.