How Other Operating Income Is Classified in the Income Statement

Other operating income represents revenues earned from activities that are not part of a company’s primary operations but are still related to its normal course of business. Unlike sales revenue, which arises from the core business model, other operating income includes incidental earnings that supplement profitability. Its classification in the income statement ensures transparency by separating primary revenue from secondary income streams, allowing stakeholders to assess the sustainability of earnings.

Other operating income arises from incidental but recurring activities.

Typical examples of other operating income include:

• Rental income from subleasing part of office space or equipment.

• Gains from foreign exchange transactions related to operations.

• Government grants related to operating activities.

• Service fees not central to the company’s primary business.

• Income from selling by-products or scrap material.

These items are not the main focus of the business but are still linked to ordinary activities, distinguishing them from non-operating income such as interest or dividends.

Presentation in the income statement separates it from core sales.

In the income statement, other operating income is reported after gross profit and alongside other operating expenses. It is not aggregated with sales revenue, ensuring clarity about the source of income.

For example:

Item	Amount (USD)
Revenue	600,000
Cost of Goods Sold	(380,000)
Gross Profit	220,000
Other Operating Income	15,000
Selling, General, and Administrative Expenses	(140,000)
Operating Income	95,000

This presentation highlights that 15,000 of the result comes from ancillary activities, not core sales.

Journal entries demonstrate recognition of other operating income.

If a company subleases equipment and receives 2,000 in rent:

• Debit: Cash 2,000

• Credit: Other Operating Income 2,000

If a government grant of 10,000 is awarded to support operating costs:

• Debit: Cash 10,000

• Credit: Other Operating Income 10,000

These entries show how secondary income flows into the income statement separately from primary revenue.

Standards provide guidance for classification and disclosure.

Under IFRS (IAS 1 and IAS 20) and US GAAP, companies must present income in a way that reflects the nature of activities. Government grants related to income must be disclosed separately, and foreign exchange gains may be shown as part of other operating income if they relate to operating transactions.

This classification prevents confusion between sales revenue and incidental income, ensuring that the income statement provides a faithful picture of operations.

Other operating income influences operating performance.

Although not a major driver of profitability, other operating income can have a noticeable impact on operating results. For example, rental income or grants may temporarily boost margins. Analysts often adjust for these items when assessing sustainable operating performance, focusing on core revenue trends.

A company with revenue of 600,000 and other operating income of 50,000 reports operating income of 120,000. Without the additional income, operating income would be 70,000—a significant difference for investors assessing recurring performance.

Disclosures improve transparency for users of financial statements.

Companies are encouraged to disclose the nature and amount of other operating income when it is material. Detailed notes clarify whether such income is recurring, such as rental fees, or non-recurring, such as government subsidies. IFRS requires additional detail when material grants are involved, including conditions attached to the assistance.

These disclosures allow investors and creditors to separate temporary boosts in income from sustainable earnings potential.

Other operating income provides context but not core strength.

The classification of other operating income ensures that financial statements highlight the difference between central business performance and incidental earnings. While it may improve reported profitability, it does not substitute for strong sales or efficient cost management. By presenting other operating income transparently, companies provide stakeholders with a more reliable understanding of their financial performance and the sources of their earnings.

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