How Other Operating Expenses Appear in the Income Statement

Other operating expenses encompass costs that are not directly part of cost of goods sold, selling, general, or administrative categories but still arise from the normal course of operations. They are reported in the income statement to ensure that all operational costs are reflected, providing a complete picture of profitability. The classification of these expenses separates them from extraordinary or financing-related costs, helping users of financial statements distinguish core business performance from incidental or external factors.

Other operating expenses represent ancillary costs of operations.

Typical examples of other operating expenses include:

• Losses on disposal of minor assets.

• Foreign exchange losses from operational transactions.

• Impairment of receivables or small write-offs.

• Penalties, fines, or settlements related to operations.

• Costs of maintaining idle facilities or restructuring charges tied to operations.

Although these items may not be incurred every reporting period, they are considered operating in nature because they relate to the company’s normal activities rather than financing or investing.

Presentation in the income statement emphasizes operating impact.

Other operating expenses are usually presented after selling, general, and administrative expenses and before operating income. They are grouped with other operating income to provide a net effect of incidental activities.

For example:

Item	Amount (USD)
Revenue	700,000
Cost of Goods Sold	(400,000)
Gross Profit	300,000
Selling, General, and Administrative Expenses	(160,000)
Other Operating Income	10,000
Other Operating Expenses	(20,000)
Operating Income	130,000

This structure shows that 20,000 in costs, while not part of SG&A, still reduced operating income.

Journal entries demonstrate recognition of other operating expenses.

If a company writes off a receivable of 5,000 as uncollectible:

• Debit: Other Operating Expense 5,000

• Credit: Accounts Receivable 5,000

If machinery is disposed of at a loss of 3,000:

• Debit: Other Operating Expense 3,000

• Debit: Accumulated Depreciation 7,000

• Credit: Machinery 10,000

These entries demonstrate how incidental costs flow through to the income statement as operating expenses.

Standards require consistent classification and disclosure.

Both IFRS and US GAAP require that expenses be classified in a way that reflects their nature and function. IAS 1 under IFRS requires disclosure of material items of income and expense separately, even if they are part of operating activities. US GAAP requires similar treatment under ASC 225, ensuring that unusual or infrequent items are not aggregated with ordinary expenses without explanation.

This consistency allows investors and creditors to assess whether reported operating results are sustainable or influenced by unusual charges.

Other operating expenses affect margins and profitability analysis.

Although often smaller in magnitude than SG&A or COGS, other operating expenses can materially affect operating income. Analysts adjust for these items when calculating normalized earnings, especially if they are non-recurring. For instance, a restructuring charge may depress profitability in one period but not represent a continuing cost.

If operating income before other operating expenses is 150,000 and such expenses total 30,000, operating income falls to 120,000, reducing operating margin significantly.

Disclosures enhance transparency of incidental costs.

Companies are expected to disclose the nature and amount of material other operating expenses. Examples include impairment losses, litigation settlements, and restructuring charges. Under IFRS, such items are often detailed in the notes to financial statements, while US GAAP requires specific disclosure of restructuring and impairment costs.

These disclosures allow stakeholders to distinguish recurring operating expenses from exceptional or unusual charges, leading to better assessments of financial health.

Other operating expenses provide context to operational performance.

By reporting other operating expenses separately, companies give users of financial statements a more complete view of the costs associated with running the business. While they may not be part of everyday sales or administrative functions, these expenses influence profitability and demonstrate the operational risks a company faces. Transparent classification and disclosure ensure that the income statement reflects not only the core cost structure but also the broader realities of conducting business.