Non Recurring ItemsDefined with Explanation of Types

Denise Elizabeth P
Senior Financial Editor & Contributor

What are Non-Recurring Items?

Non-recurring items are those which are shown in the Income Statement of the company for an accounting period that is not part of the company’s normal business operations and is a one-time occurrence and can be considered as extraordinary items.

Examples of nonrecurring items are mergers, real estate purchases, acquisitions, gain or loss from the sale of assets, etc. 

The Generally Accepted Accounting Principles (GAAP) require that all non-recurring items be reported. 

Types of Non-Recurring Items

type of non recurring items

There are four most common types of Non-Recurring Items.

They are the following: Infrequent or Unusual Items, Extraordinary Items, Discontinued Operations, and Changes in the Accounting Principles. 

Infrequent or Unusual Items

These are items that could either be infrequent or unusual but they should never be both.

Examples of infrequent or unusual items include a gain or loss from the subsidiary’s or affiliate’s sale of assets, restructuring cost, a loss incurred from a final ruling of a lawsuit, write-off or write-down of inventories.  

Extraordinary Items (Infrequent and Unusual)

Extraordinary Items are those that are both considered infrequent and unusual items.

They include the following occurrences:

  • Losses that occur from natural disasters such as loss from fire, earthquake, tornadoes, floods, and other natural calamities. 
  • Intangible Assets Write-off
  • Gain or Loss from the Retirement of Debt
  • Loss from Casualty or Gain on Life Insurance

Discontinued Operations

There are two criteria that need to be met in order for an item to be considered as part of a company’s discontinued operations:

  1. Once the discontinued component has been disposed of, the parent company will no longer have any involvement or influence in the financial or operational matters. 
  2. The disposed component’s cash flow and operations will no longer be included in the operations of the parent company. 

When the component has already been disposed of or a part thereof is already held for sale, it is required to be reported in the Income Statement. 

Changes in Accounting Principles

When a company voluntarily changes its accounting principles, it is done so provided that it can back the relevance of the change.

In doing so, the effect of the accounting change is retrospective, and the prior period adjustments need to be presented in the Income Statement. 

For example, a company changes the depreciation method from a straight-line depreciation to a Double Declining Balance method or changes the inventory method from a FIFO method to a LIFO method. 

non-recurring items

Reporting Non-recurring Items

Because the GAAP requires that all types of non-recurring items be reported in the Income Statement, companies do so.

They generally appear as after-tax items although generally, they appear before tax. 

The Management Discussion and Analysis of the financial reports discuss the non-recurring items in detail.

It can also be found in footnotes to the financial statements. 

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  1. NYU "III. One-Time and Non-recurring Charges" Page 1 - 30. April 5, 2022

  2. Cornell Law School "7 CFR § 1767.24 - Extraordinary items." Page 1 . April 5, 2022

  3. Coastal Carolina University "Extraordinary Item Classification Eliminated from the Income Statement: Some Supportive Evidence " White Paper. April 5, 2022