Which of the following would be considered a business operating expense for a service company?

Which of the following would be considered a business operating expense for a service company?

• A. Bicycle purchase for son
• B. Advertising expense
• C. Personal lunch
• D. Vacation

Answer: (B)

Operating expenses are the costs a service company incurs in the ordinary course of running the business to generate revenue. Advertising falls into selling or marketing costs that directly support attracting clients and promoting services, so it is classified as an operating expense on the income statement. The bicycle for a son, personal lunch, and vacation are personal expenses that do not relate to the business’s revenue-generating activities (meals can be deductible only under specific business contexts with proper documentation, and even then not in the same everyday sense). So advertising is the expense that fits the definition of a business operating expense.

Operating expenses are the costs a service company incurs in the ordinary course of running the business to generate revenue. Advertising falls into selling or marketing costs that directly support attracting clients and promoting services, so it is classified as an operating expense on the income statement. The bicycle for a son, personal lunch, and vacation are personal expenses that do not relate to the business’s revenue-generating activities (meals can be deductible only under specific business contexts with proper documentation, and even then not in the same everyday sense). So advertising is the expense that fits the definition of a business operating expense.