Operating charges, also known as operating expenses or operating costs, are the costs incurred by a business from its normal day-to-day operations. These costs include rent, utilities, payroll, marketing, insurance, and other overhead expenses. Operating charges are deducted from the revenue to calculate the operating income of a business.
Fixed assets, also known as property, plant, and equipment (PP&E), are the long-term tangible assets that a business owns and uses to generate income. These assets include land, buildings, machinery, vehicles, furniture, and other equipment. Fixed assets are recorded at their historical cost and are depreciated over their useful lives to reflect their wear and tear.
Procedures
To distinguish between operating charges and fixed assets in Excel, we can use the following steps:
- Create a list of all the expenses and assets of the business in separate columns.
- Label the columns as operating charges, fixed assets, or non-operating assets. Non-operating assets are the assets that are not related to the core operations of the business, such as cash, marketable securities, or investments.
- Sum up the values in each column to get the total operating charges, total fixed assets, and total non-operating assets.
- Calculate the net operating assets by subtracting the total non-operating assets from the total assets. Net operating assets are the operating assets minus the operating liabilities of the business.
- Calculate the depreciation expense for each fixed asset using the appropriate depreciation method and rate. Depreciation expense is the amount of cost allocated to each accounting period for the use of a fixed asset. Excel has built-in functions for different depreciation methods, such as SLN for straight-line, SYD for sum-of-years’ digits, DB for declining balance, and DDB for double declining balance.
- Calculate the net fixed assets by subtracting the accumulated depreciation from the total fixed assets. Accumulated depreciation is the total amount of depreciation expense that has been recorded for a fixed asset since it was acquired.
Comprehensive Explanation
The following table shows an example of how to distinguish between operating charges and fixed assets in Excel for a hypothetical business. The table also includes some non-operating assets for illustration purposes.
| Item | Value | Category |
|---|---|---|
| Revenue | $500,000 | N/A |
| Rent | $50,000 | Operating charge |
| Utilities | $10,000 | Operating charge |
| Payroll | $100,000 | Operating charge |
| Marketing | $20,000 | Operating charge |
| Insurance | $5,000 | Operating charge |
| Land | $100,000 | Fixed asset |
| Building | $200,000 | Fixed asset |
| Machinery | $50,000 | Fixed asset |
| Vehicles | $30,000 | Fixed asset |
| Furniture | $10,000 | Fixed asset |
| Cash | $20,000 | Non-operating asset |
| Marketable securities | $40,000 | Non-operating asset |
| Total assets | $620,000 | N/A |
| Total operating charges | $185,000 | N/A |
| Total fixed assets | $390,000 | N/A |
| Total non-operating assets | $60,000 | N/A |
| Net operating assets | $560,000 | N/A |
| Depreciation expense | $39,000 | N/A |
| Accumulated depreciation | $39,000 | N/A |
| Net fixed assets | $351,000 | N/A |
The formulas used in the table are as follows:
- Total assets = SUM(B2:B13)
- Total operating charges = SUM(B3:B7)
- Total fixed assets = SUM(B8:B12)
- Total non-operating assets = SUM(B13:B14)
- Net operating assets = B15-B16
- Depreciation expense = SLN(B8,B2,20)+SLN(B9,B2,25)+SLN(B10,B2,10)+SLN(B11,B2,5)+SLN(B12,B2,5)
- Accumulated depreciation = B17
- Net fixed assets = B16-B18
Scenario and Example
To illustrate how to use the Excel formulas to calculate the operating charges and fixed assets, let us consider the following scenario:
- A business has a revenue of $500,000 in the year 2024.
- The business pays $50,000 for rent, $10,000 for utilities, $100,000 for payroll, $20,000 for marketing, and $5,000 for insurance in the same year.
- The business owns a land worth $100,000, a building worth $200,000, a machinery worth $50,000, a vehicle worth $30,000, and a furniture worth $10,000. The land is not depreciated, the building has a useful life of 25 years, the machinery has a useful life of 10 years, the vehicle has a useful life of 5 years, and the furniture has a useful life of 5 years. The business uses the straight-line depreciation method for all its fixed assets.
- The business also has $20,000 in cash and $40,000 in marketable securities, which are considered non-operating assets.
Using the Excel formulas, we can calculate the following values for the business:
- Total assets = $500,000 + $50,000 + $10,000 + $100,000 + $20,000 + $5,000 + $100,000 + $200,000 + $50,000 + $30,000 + $10,000 + $20,000 + $40,000 = $620,000
- Total operating charges = $50,000 + $10,000 + $100,000 + $20,000 + $5,000 = $185,000
- Total fixed assets = $100,000 + $200,000 + $50,000 + $30,000 + $10,000 = $390,000
- Total non-operating assets = $20,000 + $40,000 = $60,000
- Net operating assets = $620,000 – $60,000 = $560,000
- Depreciation expense = SLN($200,000,$500,000,25)+SLN($50,000,$500,000,10)+SLN($30,000,$500,000,5)+SLN($10,000,$500,000,5) = $8,000 + $5,000 + $6,000 + $2,000 = $21,000
- Accumulated depreciation = $21,000
- Net fixed assets = $390,000 – $21,000 = $369,000
The following table shows the Excel calculation for the scenario:
| Item | Value | Formula | Category |
|---|---|---|---|
| Revenue | $500,000 | =500000 | N/A |
| Rent | $50,000 | =50000 | Operating charge |
| Utilities | $10,000 | =10000 | Operating charge |
| Payroll | $100,000 | =100000 | Operating charge |
| Marketing | $20,000 | =20000 | Operating charge |
| Insurance | $5,000 | =5000 | Operating charge |
| Land | $100,000 | =100000 | Fixed asset |
| Building | $200,000 | =200000 | Fixed asset |
| Machinery | $50,000 | =50000 | Fixed asset |
| Vehicles | $30,000 | =30000 | Fixed asset |
| Furniture | $10,000 | =10000 | Fixed asset |
| Cash | $20,000 | =20000 | Non-operating asset |
| Marketable securities | $40,000 | =40000 | Non-operating asset |
| Total assets | $620,000 | =SUM(B2:B13) | N/A |
| Total operating charges | $185,000 | =SUM(B3:B7) | N/A |
| Total fixed assets | $390,000 | =SUM(B8:B12) | N/A |
| Total non-operating assets | $60,000 | =SUM(B13:B14) | N/A |
| Net operating assets | $560,000 | =B15-B16 | N/A |
| Depreciation expense | $21,000 | =SLN(B9,B2,25)+SLN(B10,B2,10)+SLN(B11,B2,5)+SLN(B12,B2,5) | N/A |
| Accumulated depreciation | $21,000 | =B17 | N/A |
| Net fixed assets | $369,000 | =B16-B18 | N/A |
