Businesses use income statements to share information regarding the company’s activities and profitability for the period reported. The income statement considers all of the revenues and expenses recorded for the period and reports the net income earned. The income statement separates expense items into several categories, including product cost, operating expenses, other operating expenses and non-operating expenses.
Other operating expenses include all expenses related to the operation of the business that do not fit into the other expense categories. These expenses relate directly to the operation of the business. Business operations include the production process, maintaining the production facility or maintaining the sales office. When a business creates their accounts, they try to anticipate all of the expenses they want to track and then set up an account for each one. When small-dollar, unique expenses occur that do not fit with a current account, the company charges these to other operating expenses.
Small-dollar expenses often make no significant impact on the company’s financial statements. Creating a new category for these expenses requires the company to invest both time and system resources. Many companies determine that the benefit of creating categories for these expenses is not worth the investment and prefer to leave these expenses as other operating expenses. These expenses include paying a recycling fee or purchasing a permit to exhibit at a onetime community event.
Businesses sometimes incur unique operating expenses that occur rarely in the business. Since these expenses occur rarely, the investment required to create a new expense category makes little sense for the business. Instead these expenses qualify as other operating expenses. These expenses include the purchase of a paper shredder or the cost of donating a piece of equipment to a community organization.
The income statement breaks down each expense category and calculates various measures of income. The revenues start the calculations on the income statement and appear first. The cost of all the products sold appears next. The company subtracts this expense from the total revenues to calculate gross profit. All of the operating expenses, including the other operating expenses, appear next. The gross profit minus the operating expenses equals the operating income. Any other expenses appear next. The operating income minus all other expenses equals the net income.