Non-operating expenses: Definition, examples, and why they matter

Businesses often encounter costs that don’t tie directly to their day-to-day operations. In accounting, these costs are known as non-operating expenses.

Unlike operating expenses (OpEx), non-operating expenses are costs that fall outside of a company’s main business activities. These can include items such as interest payments or losses from investments, which don’t directly relate to the company’s everyday functions.

Understanding non-operating business expenses

Non-operating expenses are costs, expenditures, or purchases unrelated to your core business operations. However, it’s important to recognize that an expense may be classified as a non-operating expense for one company and an operating expense for another. The key distinction is whether the expense generates revenue for the business.

For example, a real estate company whose primary business purpose is to buy and sell property for investment would consider a loss on the sale of real estate to be an operating expense. Because buying and selling property is how they generate revenue, an expense associated with buying or selling property would be an operating expense.

Almost any other business—a restaurant, publishing company, or furniture store—would classify real estate losses as non-operating expenses because they aren’t in the real estate business.

Common examples of non-operating expenses

Some of the most common types of non-operating expenses include:

• Losses on investments: Many businesses have investments in other ventures or financial instruments. Losses on these investments would be considered non-operating expenses.
• Interest payments on debts: Interest fees on loans, mortgages, business credit cards, and so on
• Restructuring costs: Costs associated with organizational restructuring to improve efficiency or competitiveness
• Relocation costs: Expenses tied to moving your business operations from one location to another
• Inventory write-offs: Losses associated with writing down the value of unsalable product are considered operating expenses
• Foreign exchange fees and currency fluctuation: If your business holds foreign currency and the exchange rate decreases, it could result in a non-operating loss
• Costs from natural disasters: Any losses or recovery costs that result from a natural disaster would be recorded as non-operating expenses
• Uncommon legal fees or lawsuit settlement costs: While everyday fees for legal counsel are considered operating expenses, the cost of a one-time settlement would be a non-operating expense
• Changes in accounting method: Changing your business’s accounting methods can sometimes create non-operating losses due to changes in the recorded value of assets or liabilities

Non-operating expenses vs. other types of business expenses

Businesses classify expenses into several distinct categories to maintain accurate financial reporting. Besides non-operating expenses, operating expenses and capital expenditures represent key classifications that impact how companies categorize their spending.

Operating expenses vs. non-operating expenses

Operating expenses are costs that a business incurs to remain functional. These are recurring, everyday costs associated with operating activities, including rent, payroll, utilities, depreciation, and taxes.

In contrast, non-operating business expenses result from non-operating activities that are unrelated to the business’s day-to-day operations. Here are the key differences between the two at a glance:

Capital expenditures vs. non-operating expenses

Capital expenditures (CapEx) are the costs associated with acquiring, upgrading, or maintaining assets such as property, equipment, or intellectual property (IP). While capital expenses usually don’t have an immediate impact on day-to-day operations, they’re significantly different from non-operating expenses.

First, capital expenses such as IP, copyrights, and patents are often related to core operating activities and could help generate revenue in the long term. Second, capital expenditures are documented as assets on your balance sheet, while non-operating expenses are recorded on your income statement.

How to record non-operating expenses

Recording non-operating expenses follows the same general accounting principles as other expenses but requires careful attention to detail. Since these expenses are unrelated to your core business activities, you should classify them separately in your financial records. Here are the steps to take:

1. Identify the expense: First, clearly distinguish the non-operating expense from operating expenses. This includes costs such as interest payments, asset impairments, or one-time legal fees that don’t relate to day-to-day operations.
2. Use the appropriate account: You should record non-operating expenses in dedicated accounts on your income statement. Common accounts include interest expense or other expenses. This ensures a clear separation between operating and non-operating costs.
3. Document the transaction: Using journal entries or software tools, document the transaction with the proper date, amount, and description of the expense. For instance, if you're recording interest paid on loans, make sure to note the terms of the loan and the amount paid.
4. Review financial reports: Regularly review your financial statements to make sure you’ve properly categorized your non-operating expenses. This can help improve the accuracy of your financial reporting and prevent potential errors in your profit and loss statement.

Where non-operating expenses appear on the income statement

Non-operating expenses are reported on your company’s income statement just after revenue, cost of goods sold (COGS), and operating net income. Sometimes this section is labeled “Other income and expenses.” Here’s an example:

Why it’s important to track non-operating expenses

Tracking non-operating expenses separately reveals your true operational performance and financial health without the distortion of unusual, one-time costs.

Helps you better understand your financial performance

Even though non-operating expenses are incidental to a business’s primary revenue-generating activities, they still affect the company financially. In some cases, like in the event of a lawsuit settlement or a natural disaster, non-operating costs can completely change a business’s bottom line. If you understand what sort of costs fall into each bucket, you can better understand your financial health.

Provides additional data for forecasting and budgeting

Forecasting isn’t an exact science, so the more information you have, the better. By splitting out operational activities from non-operating activities in your financial reports, you can get more accurate forecasts of actual business performance and estimate how incidental costs and revenues from non-operating activities will impact your overall profitability.

Helps you grow and scale your business

Non-operating activities may change drastically from year to year, but if you look at overall trends, you can estimate how non-operating activities will affect net income. This can help you determine whether you have the capital to expand your product line, afford a new business location, and other strategic investments.

Get full visibility into non-operating expenses with Ramp

Non-operating expenses significantly impact your financial reporting and analysis despite being separate from your core business activities. When you properly categorize, record, and track these expenses, you gain clearer insights into your operational performance, improving forecasting accuracy, and making more informed decisions about business growth.

Finance automation software gives you complete visibility into all your business expenses with automated categorization that separates operating from non-operating costs. You can generate detailed financial reports that clearly distinguish between expense types, helping you make smarter decisions based on your true operational performance. Explore how Ramp's intelligent expense management tools can transform your financial reporting.