On the Income statement, incoming revenues and outgoing expenses are generally classified as either "operating" gains and losses or "non-operating" gains and losses.
Operating gains and losses are, not surprixingly, revenues and expenses resulting from operating in the compay's normal line of business. However, non-operating items are accompanied on the income statement by the other major revenue and expense category, non operating gains and losses.
The Income statement treatment of non-recurring items began in ate 2015 to undergoing change under International Financial Reporting Standards (IFRS) and under country-specific GAAP. Until 2015, the major categories of non-operating items included:
- Extraordinary items
(No longer used in most countries after 2015)
- Non-recurring items
- Unusual or one time-charges, for example, expenses for "restructuring" or "employee separation."
- One-time or unsual gains, such as proceeds for sale of land assets.
- Charges Asset Impairment or Asset Write-down, such as a write off for inventory that has become worthless.
- Financial gains and losses
(For companies not in financial services)
What is changing for the handling of these items, however, is the need to distinguish between Extraordinary items and other Non-recurring items. That distinction is no longer required in some countries. Use of the Extraordinay Item category ended in the United States and the UK in 2015, for instance. In other countries—Canada, for Instance—the "Extraordinary" designation is still used ed in a few circumstances.
Exhibit 1, below, is an example Income statement with a typical level of detail for the Annual Report. On this example Non-recurring items appear as the final major category. Note that until 2015, the Non-recurring item "Sale of Land" would have been reported as an Extraordinary Item."
|Grande Corporation Figures in $1,000's
Income Statement for the Year Ended 31 December 20YY
Gross sales revenues
"Less" returns & allowances
Net sales revenues
Cost of goods sold
Depreciation, mfr equipment
Other mfr overhead
Net mfr overhead
The Net cost of goods sold
Depreciation, Store equip
Other selling expenses
Total selling expenses
General & Admin expenses
Other general & admin expenses
Total general & admin exp
Total operating expenses
Operating Income Before Taxes
| Financial revenue & Expenses
Revenue from investments
Less interest expense
Net financial gain (expense)
Income before tax & ext items
Less income tax on operations
Income before extraordinary items
Sale of land
Less initial cost
Net gain on sale of land
Less income tax on the gain
Non-recurring items after tax
|Net Income (Profit)||2,126|
Exhibit 1. Detailed example Income statement, showing how Revenue and Expense account items represent the Income statement equation:
Income = Revenues – Expenses.
Before 2015, GAAP in most countries handled "extraordinary" items somewhat differently than other non-recurring gains and losses. As a result, before 2015, Accountants sometimes devoted substantial time and effort to deciding whether a given gain or loss qualified as "extraordinary." Country-specifci GAAP in many countries provided their own criteria for making the distinction, but in many cases, the rules for deciding between extraordinary and non-extraordinary called for of subjective judgement or were otherwise otherwise subject to varying interpretation.
Initially, country-specific GAAP prescribed more advantageous tax treatment for non-recurring gains and losses, compared to non-extraordinary items. However, these tax-treatment differences largely disappeared over the last decade and, as a result, the reason for recognizing the special category "Extraordinary" also disappeared. The demise of the "Extraordinary Item" category iwas due, primarily, to the 2015 decision of the Internataional Financial Accounting Reporting Standards (IFRS) body not recognize the extraordinay item concept.