What are operating expenses?

Operating expenses refer to the costs incurred in the regular functioning of a business on a daily basis. These expenses include items such as rent, utilities, payroll, and office supplies, which are essential for maintaining operations but do not directly lead to the production of goods. Understanding operating expenses is crucial for budgeting and financial analysis, as they significantly affect a company's profitability and cash flow.

In contrast to the correct answer, costs associated with product development are typically classified as capital expenses rather than operating expenses, as they are related to investments in long-term assets or projects. Revenue generated from sales is an indication of a company's income, not an expense, while profits represent what remains after all expenses, including operating expenses, have been deducted from revenue. Thus, the focus on daily operational costs distinctly aligns with the definition of operating expenses.