Non-operating income definition
/What is Non-Operating Income?
Non-operating income is any profit or loss generated by activities outside of the core operating activities of a business. The concept is used by outside analysts, who strip away the effects of these items in order to determine the profitability (if any) of a company's core operations. When a company experiences a sudden spike or decline in its reported income, this is likely to have been caused by non-operating income, since core earnings tend to be relatively stable over time.
Examples of Non-Operating Income
Examples of non-operating income include dividend income, asset impairment losses, gains and losses on investments, and gains and losses on foreign exchange transactions.
Related AccountingTools Courses
The Interpretation of Financial Statements
Timing of Non-Operating Income
Non-operating income is more likely to be a one-time event, such as a loss on asset impairment. However, some types of income, such as dividend income, are of a recurring nature, and yet are still considered to be part of non-operating income.
Fraudulent Use of Non-Operating Income
A business might attempt to use non-operating income to mask poor operational results. For example, the recipient of a round of funding could invest the cash and generate such a large amount of interest income that it is the largest part of total earnings reported; this is especially common for a startup business that has little operating income. Some less ethical organizations try to characterize their non-operating income as operating income in order to mislead investors about how well their core operations are functioning.
Presentation of Non-Operating Income
Non-operating income is itemized at the bottom of the income statement, after the operating profit line item. An example of this line item is highlighted in the following exhibit, which contains a complete income statement.
