Financial Statement Analysis Practice Test 2025 – The Complete All-in-One Guide to Exam Success!

Non-operating expenses refer to costs that are not directly linked to the core operations of a business. They arise from activities outside of the main revenue-generating activities of the company. Interest expense is a prime example of a non-operating expense as it results from a company's financing activities, specifically the cost of borrowing funds. This expense does not relate to the production or selling of goods or services, which are typically classified in operating expenses.

In contrast, cost of goods sold, research and development, and selling, general, and administrative expenses all represent costs associated with the operational aspects of the business. Cost of goods sold relates to the direct costs of producing goods that a company sells. Research and development pertains to expenses aimed at innovating and improving products or services, integral to maintaining competitive advantage. Selling, general and administrative expenses include operational costs necessary for running the business. All of these are critical to the core functions of the business and are therefore classified as operating expenses.