Non-Operating Expense

Non-Operating Expense: Definition and Examples

Key takeaways

• A non-operating expense is a cost that does not arise from a company’s core business activities.
• These expenses are reported below operating profit on the income statement and reduce earnings before taxes (EBT).
• Common examples include interest expense, losses on asset disposals, restructuring charges, and currency-exchange losses.

What is a non-operating expense?

A non-operating expense is an accounting charge not directly related to the day-to-day operations that generate a company’s primary revenue. While operating expenses (rent, utilities, wages, cost of goods sold) support ongoing business activity, non-operating expenses reflect financing choices, one-time events, or other peripheral activities.

Accountants and analysts often separate non-operating items from operating results to evaluate the performance of the core business more accurately (for example, by comparing operating profit, EBIT, or EBITDA).

Where it appears on the income statement

Income statement flow (simplified):
1. Revenue (top line)
2. Minus Cost of Goods Sold (COGS) = Gross Profit
3. Minus Operating Expenses = Operating Profit (EBIT)
4. Minus Non-Operating Expenses = Earnings Before Taxes (EBT)
5. Minus Taxes = Net Income

Non-operating expenses are recorded after operating profit, so they affect the bottom line but not operating margins.

Common examples

• Interest expense on debt — recurring and related to financing, not operations.
• Loss on sale of property or equipment — if the asset sale is outside normal business activities.
• Restructuring and reorganization costs — often one-time charges.
• Currency-exchange losses — from foreign-currency transactions or translations.
• Legal settlements, impairment losses, and other unusual or infrequent charges.

Why separate non-operating expenses?

Separating these items helps stakeholders understand how much profit is generated by core operations versus financing decisions or one-off events. It improves comparability between companies and provides a clearer view of operational efficiency.

Are rent and utilities non-operating expenses?

No. Rent and utilities are typically operating expenses because they are necessary for the company’s ongoing operations.

Conclusion

Non-operating expenses reduce earnings but do not reflect the day-to-day operating performance of a business. Identifying and separating them from operating results enables clearer analysis of a company’s core profitability and operational trends.