Final answer:
Operating income reflects the profits from a company's core business operations and includes expenses such as depreciation, rent, and cost of goods sold. Interest earned is not included in operating income as it is classified as non-operating income.
Step-by-step explanation:
Operating income is a measure of a company's profitability from its core business operations, exclusive of income and expenditures from unusual, nonoperational activities. To find the operating income, you typically look at a company's income statement and subtract operating expenses like depreciation, cost of goods sold (COGS), and rent payments from the gross revenue. However, operating income does not include money earned from investments or interest, which is categorized as non-operating income. Hence, the interest earned is not taken into account when calculating operating income because it results from financial activities, not the company's primary business operations.
Let's review each option given:
- Depreciation is an operating expense as it reflects the cost allocated for the use of fixed assets over time, which relates directly to the operations of the company.
- Cost of goods sold is certainly part of operating expenses as it represents the direct costs attributable to the production of the goods a company sells.
- Rent payments are also operating expenses because they are regular payments for using property or equipment for business operations.
- Interest earned is the correct choice because it pertains to the financial aspect of the business, such as earnings from investments, and does not affect the calculation of operating income.
In summary, the final answer in two line explanation in 300 words is: Operating income is not affected by interest earned because it falls under non-operating income, which does not impact the core business profitability that operating income measures.