What are non-operating revenues and expenses?
February 12, 2012
Learn about non-operating revenues and expenses.
Income from continuing operations is usually presented in the following two formats: single-step or multi-step. In the single-step format, items are classified into two groups as follows: revenues and expenses. In the multi-step format, operating revenues and expenses are reported separately from non-operating revenues and expenses.
Non-operating revenues and expenses are associated with secondary (not main/central/core) operations of an entity.
For example, universities’ main operations usually involve such activities as providing educational services, research funding, etc. As the result, in this case the following revenues and expenses may be classified as operational: tuition and fees, research grants, investment income, education expenses, etc. A university might recognize certain gifts and bequests as non-operating revenue as such revenue source might be not associated with the main activities of the university.
A hospital might recognize the following items as non-operating revenues and expenses as such operations represent other health-care related activities: income from investments, appropriations (i.e., funds provided by government) and grants (i.e., funds given for special purposes), support services (e.g., parking fees, parking personnel wages, public relations expenses, revenue from the gift shop, cafeteria sales, income from hotel operations, and rental income).
Non-operating revenues of a bank could be generated by such nonbanking activities as: insurance, real estate development, pension products, etc.
An apartment complex might have the following sources of other income: vending machines, laundry, application fees, late fees, etc.
In general, non-operating revenues and expenses are often combined and reported as other income (expense). An example of a multi-step format statement is presented below:
To mask a decline in operating performance, a company might classify non-operating income as operating revenues or operating expenditures as non-operating expenses. To identify such type of earnings management, it is possible to look at temporal inconstancies in classifying revenues and expenses in accordance with company’s definition of operating income and expenses.
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