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A company’s financial statements allow the business to stop and take a snapshot of how well the company is performing. The income statement reports the company’s net profit (or loss) at the end of an accounting cycle. The income statement normally breaks down the expense categories for better analysis of profit areas. One of the most important areas for analysis is the operational profit of the business.

Operating Expense and the Income Statement

The income statement usually breaks down expenses or costs into two separate categories, fixed and operating expense. Fixed expenses are those expenses that generally do not change from month to month like rent and insurance. Operating expenses, also known as variable expenses, tend to fluctuate along with production in a manufacturing environment. In a sales environment they tend to fluctuate along with sales activities. Some examples of operating expense include

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