What Is a Non-Operating Expense?
A non-operating expense is a business expense unrelated to core operations. The most common types of non-operating expenses are interest charges and losses on the disposition of assets. Accountants sometimes remove non-operating expenses and non-operating revenues to examine the performance of the core business, excluding the effects of financing and other items.
Non-operating expenses can be contrasted with operating expenses, which relate to the day-to-day functioning of a business.
Key Takeaways
- A non-operating expense is incurred when a cost doesn't directly relate to a firm's primary or core business.
- Non-operating expenses are deducted from operating profits and accounted for at the bottom of a company's income statement.
- Examples of non-operating expenses include interest payments, write-downs, or costs from currency exchanges.
Understanding Non-Operating Expense
Non-operating expense, like its name implies, is an accounting term used to describe expenses that occur outside of a company's day-to-day activities. These types of expenses include monthly charges like interest payments on debt and can also include one-time or unusual costs. For example, a company may categorize any costs incurred from restructuring, reorganizing, costs from currency exchange, or charges on obsolete inventory as non-operating expenses.
Non-operating expenses are recorded at the bottom of a company's income statement. The purpose is to allow financial statement users to assess the direct business activities that appear at the top of the income statement alone. Generating profit from core operations is critical for a company.
Special Considerations
When looking at a company's income statement from top to bottom, operating expenses are the first costs displayed below revenue. The company starts the preparation of its income statement with top-line revenue. Cost of goods sold (COGS) is subtracted from revenue to arrive at gross income.
After gross income is calculated, operating costs are subtracted to get the company's operating profit, or earnings before interest and tax (EBIT). After operating profit has been derived, non-operating expenses are subtracted from operating profit to arrive at earnings before taxes (EBT). Taxes are then calculated to derive net income.
Non-Operating Expense Examples
Most public companies finance their growth with a combination of debt and equity. Regardless of the allocation, any business that has corporate debt also has monthly interest payments. This is considered a non-operating expense because it's not commonly thought of as core operations.
If a company sells a building, and it's not in the business of buying and selling real estate, the sale of the building is a non-operating activity. If the building were sold at a loss, the loss is considered a non-operating expense.
Frequently Asked Questions
Why do companies separate out non-operating expenses?
When looking at how a company generates profits, understanding its profits from core operations, net of direct operating expenses, is critical. Costs unrelated to these operations impact the bottom line, but they may not indicate how well a company is running.
What are examples of non-operating expenses?
Interest payments, the costs of disposing of property or assets not related to operations, restructuring costs, inventory write-downs, lawsuits, and other one-time charges are common examples.
Are rent and utilities non-operating expenses?
Typically, no. These would both be directly related to a business' core operations, since without paying rent and utilities, the firm wouldn't be able to function.
FAQs
A non-operating expense is a business expense that is not related to a company's core business operations. The most common items that fall under the category include interest expense and loss on the sale of assets.
What is non-operating expenses with example? ›
A non-operating expense is a cost from activities that aren't directly related to core, day-to-day company operations. Examples of non-operating expenses include interest payments and one-time expenses related to the disposal of assets or inventory write-downs.
What is a common example of non-operating income? ›
Investment income, gains or losses from foreign exchange, as well as sales of assets, writedown of assets, interest income are all examples of non-operating income items. Some of the non-operating income items are recurring, for example, dividend income, and interest income.
Which of the following is an example of a nonoperating expense? ›
Final answer: Interest expense is an example of a nonoperating expense for a merchandising company.
What are non-operating items best defined as? ›
Non-operating expense, like its name implies, is an accounting term used to describe expenses that occur outside of a company's day-to-day activities. These types of expenses include monthly charges like interest payments on debt and can also include one-time or unusual costs.
Which of these is an example of a non operating activity? ›
Examples of non-operating activities include: Relocating the business. Expenses caused by weather damage. Acquiring another firm.
What does non operating mean? ›
: not functional or operational : nonoperational.
What are examples of operating expenses? ›
Often abbreviated as OpEx, operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and development.
What are two non-operating income? ›
Non-operating income is the portion of an organization's income that is derived from activities not related to its core business operations. It can include dividend income, profits or losses from investments, as well as gains or losses incurred by foreign exchange and asset write-downs.
Which of the following is not an operating expense? ›
Expert-Verified Answer
Interest expense (Option C) is not reported as an operating expense on the income statement.
In accounting, noncash items are financial items such as depreciation and amortization that are included in the business' net income, but which do not affect the cash flow.
What are operating and non-operating items? ›
Under IFRS, operating activities include all transactions and other events that are not defined as investing or financing activities. Non-operating items include revenue and expense items that are generated during the regular course of business operations.
What is non-operating cash? ›
Non-operating cash flow is comprised of the cash a company takes in and pays out that comes from sources other than its day-to-day operations. Examples of non-operating cash flow can include taking out a loan, issuing new stock, and a self-tender defense, among many others.
What are some examples of non-operating expenses? ›
Examples of Non-Operating Expenses
- Interest expense.
- Obsolete inventory charges.
- Derivatives expense.
- Restructuring expense.
- Loss on disposition of assets.
- Damages Caused to Fire.
- Floatation cost.
- Lawsuit settlement expenses.
Common non-operating assets include unallocated cash and marketable securities, loans receivable, idle equipment, and vacant land.
What is considered a non-operating asset? ›
Assets that aren't used to make money are called non-operating assets and could include things like land that isn't being used, vacant buildings, unused or outdated machinery and idle equipment.
Which of the following items is not an operating expense? ›
Written off is not an operating Expenses.
Is rent a non-operating expense? ›
Operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and development. By contrast, a non-operating expense is an expense incurred by a business that is unrelated to the business's core operations.
Are bank fees non-operating expenses? ›
However, we generally recommend categorizing bank fees as financial expenses. This is because bank fees are typically considered to be expenses that are incurred in the course of running your business, and are not directly related to the production of your product or service.
Is income tax a non-operating expense? ›
Non-operating expenses are expenses that do not relate directly to the business's core operations. The most common examples of non-operating expenses are interest, taxes, depreciation and amortization.
