Which item is NOT typically classified as an operating expense on the income statement?

• A. Cost of goods sold
• B. Administrative
• C. Interest
• D. Sales and marketing

Answer: (C)

The idea being tested is the distinction between operating and non-operating expenses on the income statement. Operating expenses are the costs directly tied to running the business and generating revenue, such as selling, general, and administrative costs. Interest, on the other hand, is a financing cost incurred from borrowing money. It stems from financial activities, not from the core operations of producing goods or delivering services, so it appears outside the operating expenses section and is shown as a non-operating (financing) item.

Administrative costs and sales and marketing are classic operating expenses because they relate to running the business day to day. Cost of goods sold is the direct cost of producing the goods sold and is typically shown separately from operating expenses, as part of gross profit calculations rather than within the operating expenses category.

So interest stands out as not being an operating expense, which is why it’s the correct choice.