Operating expenses are subtracted from revenue for a service company and from gross profit for a merchandising company.

Question

Quizplus · Accepted Answer

Operating expenses are deducted from revenue in the case of a service company because they typically do not have goods to sell, thus no cost of goods sold (COGS) or gross profit calculation. For a merchandising company, operating expenses are subtracted from gross profit, which is calculated by deducting COGS from revenue, reflecting the cost of merchandise sold.

Operating Expenses Are Subtracted from Revenue for a Service Company