{"id":3743,"date":"2019-10-08T13:33:00","date_gmt":"2019-10-08T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=3743"},"modified":"2026-03-20T19:21:07","modified_gmt":"2026-03-20T19:21:07","slug":"operating-versus-non-operating-items","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/operating-versus-non-operating-items\/","title":{"rendered":"Operating versus Non-operating Items"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Accurate statement about operating and non-operating items under IFRS\",\n    \"text\": \"Which of the following statements is accurate?\\n\\nA. Under IFRS, operating activities include all transactions and other events that are not defined as investing or financing activities.\\n\\nB. Non-operating items include revenue and expense items that are generated during the regular course of business operations.\\n\\nC. Non-operating items are always reported separately from operating items in a company\u2019s financial statements.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is C.\\n\\nNon-operating items are reported separately from operating items to distinguish them from the company\u2019s core business activities.\\n\\nA is incorrect. IFRS does not explicitly define operating activities in the same way as US GAAP.\\n\\nB is incorrect. Non-operating items are not generated from regular business operations.\"\n    }\n  }\n}\n<\/script>\n\n\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/hNscz8Hx_Jg\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>When assessing a company\u2019s current or potential future financial performance, it is important to consider the effects of both operating and non-operating components of the income statement. For example, a company that may appear to be profitable based on the results of its primary business activities could also be facing huge losses due to non-operating expenses.<\/p>\n<p><strong>Non-operating components<\/strong> on the income statement include revenue and expense items that were not generated during the regular course of business operations. Due to the material nature of non-operating items, they are always reported exclusively i.e. separate from operating items in a company\u2019s financial statements.<\/p>\n<h2><strong>US GAAP vs. IFRS<\/strong><\/h2>\n<p>Under US GAAP, operating activities include all transactions and other events which are not defined as investing or financing activities. Operating activities generally involve the production and delivery of goods or provision of services.<\/p>\n<p>IFRS, however, does not define operating activities. Companies that choose to report operating income or the results of operating activities in their financial reports must ensure that these are activities that qualify to be called operating activities.<\/p>\n<h2><strong>Non-financial vs. Financial Services Companies<\/strong><\/h2>\n<p>For non-financial service companies, non-operating income that is disclosed separately on the income statement or in the notes to the financial statements includes amounts that are earned through investing activities. Interest expense on debt securities, including amortization of any discount or premium, is reported as a non-operating item on the income statement. In this case, the interest expense is related to the amount of borrowings and is usually described in the notes to the financial statements.<\/p>\n<p>For financial service companies, interest, income, and expense are typically reported as components of operating activities.<\/p>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>Which of the following statements is accurate?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Under IFRS, operating activities include all transactions and other events that are not defined as investing or financing activities.<\/li>\n<li data-tadv-p=\"keep\">Non-operating items include revenue and expense items that are generated during the regular course of business operations.<\/li>\n<li data-tadv-p=\"keep\">Non-operating items are always reported exclusively i.e.\u00a0 separate from operating items in a company\u2019s financial statements.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>C<\/strong>.<\/p>\n<p><strong>A is incorrect<\/strong> because IFRS does not provide a definition for operating activities. The definition given is that provided by US GAAP.<\/p>\n<p><strong>B is incorrect<\/strong> because non-operating items include revenue and expense items that are not generated during the regular course of business operations.<\/p>\n<\/blockquote>\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When assessing a company\u2019s current or potential future financial performance, it is important to consider the effects of both operating and non-operating components of the income statement. For example, a company that may appear to be profitable based on the&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-3743","post","type-post","status-publish","format-standard","hentry","category-financial-reporting-and-analysis","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Operating vs Non-operating Items | CFA Level 1 - AnalystPrep<\/title>\n<meta name=\"description\" content=\"Distinguish between operating and non-operating items on the income statement, highlighting their impact on a company\u2019s core business performance.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/operating-versus-non-operating-items\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Operating vs Non-operating Items | CFA Level 1 - 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