Incidental operations definition
/What are Incidental Operations?
Incidental operations are considered to be any revenue-generating activities conducted during the development period of a property, which are used to reduce the development cost of the property. These operations are separate from any activities intended to generate a return on the use of the property.
Accounting for Incidental Operations
When there is revenue from incidental operations, the proper accounting is to first net the revenue against any related costs. Further actions are as follows:
The excess of any revenues over their costs are accounted for as a subtraction from any capitalized project costs.
If the costs of these incidental operations exceed their revenues, charge the difference to expense as incurred.
Example of Incidental Operations
Here are several examples of incidental operations:
Parking lot fees during construction. A developer constructing a commercial building in a busy urban area may temporarily lease part of the property as a paid parking lot. The revenue generated from parking fees helps offset some of the development costs but is not intended as a long-term business venture.
Timber sales from land clearing. When preparing a large piece of land for a housing development, a company may need to clear trees from the property. Instead of discarding the timber, they sell it to lumber companies, using the proceeds to reduce overall site preparation costs.
Leasing space for temporary events. Before completing a shopping mall, a developer might allow local businesses or organizations to use part of the property for temporary events, such as a farmers' market or seasonal pop-up shops. The short-term rental income helps offset construction expenses but is not part of the mall’s long-term business plan.