Would debt service be considered an operating expense?

Debt service refers to the payments made to repay borrowed funds, which can include both principal and interest payments on loans. It is categorized distinctly from operating expenses because it pertains to financing rather than the operational activities of a business.

Operating expenses typically include costs necessary for the day-to-day functioning of a property or business, such as maintenance, utilities, and property management. Since debt service is tied to the financing structure of an organization—reflecting how it funds its operations rather than the costs incurred while operating—classifying it as a financing cost is appropriate. This classification helps financial analysts understand the difference between the costs of maintaining operations and the costs associated with financing those operations.

In contrast to other options, which either misinterpret the nature of debt service or inaccurately include it in operational costs, recognizing it as a financing cost provides clarity in financial reporting and analysis.