What are non-operating revenues and expenses?

Learn about non-operating revenues and expenses.

1. Nature of 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.

2. Examples of non-operating revenues and expenses

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:

Sales:

     
 

Sales

   

xxx

 

Less:    Sales discounts

 

xxx

 
 

             Sales returns and allowances

 

xxx

(xxx)

 

Net sales

   

xxx

Cost of goods sold

   

xxx

Gross profit

   

xxx

Operating expenses:

     
 

Selling expenses

     
 

Sales salaries

xxx

   
 

             Commissions

xxx

   
 

             Advertising expense

xxx

   
 

             Supplies expense

xxx

xxx

 
 

General and administrative expenses

     
 

             Office salaries

xxx

   
 

             Bad debt expense

xxx

   
 

             Depreciation of office building

xxx

   
 

             Depreciation of office furniture

xxx

   
 

             Utilities expense

xxx

   
 

             Insurance expense

xxx

xxx

 
 

Total operating expense

   

(xxx)

Operating income

   

xxx

Other revenues:

     
 

Interest income

 

xxx

 
 

Dividend income

 

xxx

xxx

Other expenses:

     
 

Interest expense

   

(xxx)

Income from continuing operations

   

xxx

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.

Not a member?
See why people join our
online accounting course:
Lecture Contents:
Ask a Question
Suggest a Topic
Do you have an interesting question or topic?
Suggest it to be answered on Simplestudies.com: