What is other income and expense?
Other income and expense is the group of non-operating gains, losses, and side items shown below operating income. It changes the period's net result without being core revenue.
Definition
Other income and expense is the group of gains, losses, and side items that sit below operating income on the Income Statement. These results belong to the period but do not come from the business's main work.
Accrual books record an item when it is earned or incurred. Cash-basis books may wait until the related cash arrives or leaves.
This section is not sales or service revenue, and it is not the operating cost of keeping the business open. It is a separate place for non-operating results.
Where it shows up
P&L: Located below operating income, above net income.
Balance Sheet: Related to cash, a receivable, or the asset that produced the item.
Cash flow: Increases when income is collected, reported cash from operating activities increases.
See also: Interest Expense · Operating Income · Net Income
On the Income Statement, this section lets a reader see operating profit before adding or subtracting side items. A credit increases the period's leftover; a debit reduces it.
The Balance Sheet carries the cash, receivable, or asset involved. On the Statement of Cash Flows, the related collection or payment is the cash event.
How it works
The business records its main revenue and operating costs first. The resulting operating income comes before non-operating gains and losses.
The usual flow is:
- Identify an item that is not from the main work.
- Record the related asset, liability, cash, gain, or expense.
- Present the result below operating income and include it in net income.
An insurance reimbursement, interest credit, or loss on retiring equipment can belong here. A rush of ordinary customer work is still revenue, even if it is unusual. A large cash deposit by itself is not proof of other income.
Example
Press Lane Print is a neighborhood shop. An insurer sends a $400 check for a damaged printer, and the check is not payment for a print job.
The shop records:
Debit: Cash $400
Credit: Other income $400
Cash rises by $400 and the below-operating-income item rises by $400. Print sales do not change. If the reimbursement had been earned but not collected, a receivable could be recorded first and cash later.
Common mix-ups
Other income is not the same as revenue. Revenue comes from the business's main work; this section is for items below that work.
Other income is not the same as operating income. Operating income is the result from core operations; this section is added or subtracted afterward.
Other income is not the same as cash. A gain can be earned before collection, and cash can rise for reasons unrelated to this section.
Related terms
- Interest Expense: The cost of borrowing recorded for the period.
- Interest Income: Earnings on cash balances and short-term deposits.
- Gain On Sale Of Assets: The profit or loss recorded when an asset sells for more or less than book value.
- Operating Income: Profit from core operations before interest and taxes.
- Net Income: What is left from revenue after every expense, including interest and taxes, is subtracted.
- Income Statement: A statement showing revenue earned and expenses incurred over a period, ending in net income.
- Non-Cash Expenses: Charges that reduce profit without moving cash.
- Asset Disposal: Removing an asset and its accumulated depreciation from the books when it is sold or retired.