In a corporate income statement, irregular -- or nonrecurring -- items include income or expense from discontinued operations, extraordinary items and cumulative effects of accounting changes. Financial managers report nonrecurring items net of taxes, because these are one-time events that do not affect future operating data, including fiscal payments or refunds.
Income Statement
Investors sift through a company's income statement to make sure financial managers did not write operational fiction, checking that report details match data the business previously reported. For example, financiers may compare prior quarters' performance information to determine whether current-quarter revenues and expenses are reasonable, given the company's financial standing and industry trends. Revenues and expenses -- which are the main components of an income statement -- include items as varied as sales, gains from investment activities, salaries, legal fees and depreciation. Regulators and institutional investors often read income statements in conjunction with balance sheets to verify data correlation and ensure that issuers are not fabricating details or pulling numbers out of thin air. For example, sales numbers go hand in hand with accounts receivable and cash, both of which are balance sheet components. Accounting managers typically report nonrecurring items below the "net income from continuing operations" number.
Discontinued Operations
The "discontinued operations" section is the first irregular item in a properly prepared income statement. This section indicates units or businesses a company sold, or discontinued, over the period under review. For example, a company with a 30 percent effective tax rate sells a profitable unit and reaps a $1 million gain through the deal. At the end of the year, the business would report net income from discontinued operations amounting to $700,000 ($1 million minus a transactional tax charge of $300,000, or $1 million times 30 percent).
Extraordinary Items
In accounting terminology, an extraordinary item is an event that is both unusual in nature and infrequent in occurrence. Examples include snow in sub-Saharan Africa, political expropriations in a country with a long tradition of democracy and respect of private property, and an earthquake in a region that has not encountered geological misfortune in the last 300 years. Economic events that are unusual in nature or infrequent in occurrence do not qualify as extraordinary items and usually end up in the "regular items" section of an income statement.
Cumulative Effects of Accounting Changes
As irregular items, cumulative effects of accounting changes pertain to accounting adjustments a business makes to factor in financial reporting modifications in prior performance data. These adjustments do not call for any monetary transaction -- meaning, the company does not pay for any expense that results from these changes. For example, if a Mexico City-based organization changes its accounting principles from Mexican generally accepted accounting principles to American GAAP, the business would record the cumulative effects of such a change in its income statement.
Tags: cumulative effects, discontinued operations, income statement, income statement, nonrecurring items, accounting changes, accounting principles
