Non-operating expenses: Meaning, examples, and Accounting

When analyzing your company’s financial performance, not all expenses are created equal. Some costs directly support your core business, like payroll or inventory, while others, such as interest payments or losses from selling equipment, sit outside day-to-day operations.

Those costs are non-operating expenses. They appear below operating income on the income statement and help investors and finance teams understand how well the core business performs without the noise of financing decisions or one-time events.

What are non-operating expenses?

Non-operating expenses are costs your business incurs that aren’t directly related to your core operations, such as production, sales, or service delivery. These might include non-operating costs such as interest charges, inventory write-downs, or costs associated with restructuring your business.

These expenses appear alongside non-operating income, such as gains from investments or asset sales, on your income statement. Both non-operating income and expenses offer insight into financial activity outside of your main operations.

Unlike operating expenses, which are tied directly to generating revenue, non-operating expenses reflect financing decisions, investment outcomes, or unusual events. Separating them helps finance teams and investors evaluate operational performance without distortion from costs that fall outside day-to-day business activity.

Why tracking non-operating expenses matters for finance teams

Tracking non-operating expenses is about more than clean books. Separating these costs from operating expenses gives finance teams a clearer view of what is actually driving changes in profitability.

When non-operating expenses are properly classified, they support better analysis and communication across the business:

• Operational clarity: Separating non-operating expenses isolates core business performance from financing decisions and one-time events
• Investor communication: Clear classification helps stakeholders assess operating efficiency without distortion
• Accurate forecasting: Distinguishing volatile non-operating items from predictable operating costs improves budgeting and planning
• Compliance: Proper classification supports accurate reporting under GAAP or IFRS
• Strategic decision-making: Visibility into non-operating costs can highlight opportunities to optimize debt, asset usage, or risk exposure

For example, if a software company’s profits decline, separating expenses can reveal whether the issue stems from rising customer acquisition costs or higher interest payments. Each points to a very different underlying problem and response.

Operating expenses vs. non-operating expenses: What's the difference?

The distinction between operating and non-operating expenses shapes how finance teams, investors, and lenders evaluate a business. Operating expenses reflect the cost of running your core business, while non-operating expenses capture costs tied to financing decisions, investments, or unusual events.

At a high level, the difference comes down to whether an expense directly supports revenue-generating activity:

Edge cases and gray areas

Not every expense fits neatly into one category. Context matters, and the same type of cost can be operating for one business and non-operating for another.

• Depreciation: Usually an operating expense, but it may be non-operating if it relates to an idle or non-core asset
• Bad debt: Typically operating, though a large, one-time write-off tied to a non-operating activity may be treated differently
• Rent: Operating for your headquarters, but non-operating for an investment property you own and lease out
• Legal fees: Operating for routine contracts, but non-operating for a major lawsuit or settlement

A helpful rule of thumb is to ask whether the expense directly supports your ability to produce or deliver your product or service. If it doesn’t, it likely belongs outside operating expenses.

10 common examples of non-operating expenses

Non-operating expenses cover a wide range of costs that fall outside normal business operations. Some occur regularly, while others show up only after a major event or strategic change. Seeing them side by side makes it easier to identify which costs belong outside operating expenses.

Some of these expenses, like interest, may appear regularly. Others, such as restructuring costs or disaster losses, tend to be infrequent but material. Finance teams often review these items separately to avoid overstating volatility in operating performance.

How to identify non-operating expenses in your business

Identifying non-operating expenses takes more than scanning account names. A consistent review process helps ensure expenses are classified correctly and that key financial metrics reflect reality.

Step 1: Review your income statement structure

Start with your income statement and locate operating income, often labeled EBIT. Expenses that appear below this line are typically non-operating, though placement alone should not be your only test.

Step 2: Apply the core business test

Ask whether the expense is necessary to produce or deliver your product or service. If the business could pause operations and the cost would still exist, it likely falls outside operating expenses.

Step 3: Consider frequency and predictability

One-time or irregular expenses often signal non-operating activity. That said, recurring costs like interest expense can still be non-operating, so frequency alone is not decisive.

Step 4: Trace the source of the expense

Look at where the expense originates. Financing activities, investment decisions, asset sales, and legal events generally create non-operating items, while production, sales, and support functions drive operating costs.

When classification is unclear, refer to GAAP or IFRS guidance and document the rationale behind your decision. Consistency matters as much as accuracy, especially when results are reviewed by auditors or investors.

How to calculate and record non-operating expenses

Calculating non-operating expenses starts with identifying which costs fall outside your core operations, then aggregating those items for the reporting period. The goal is not just accuracy, but clarity in how operating and non-operating results are presented.

At a basic level, total non-operating expenses represent the sum of all qualifying non-operating costs incurred during the period:

Total non-operating expenses = Interest expense + Losses on asset sales + Restructuring costs + Other non-operating items

Non-operating items can also include income, such as gains on investments or asset sales. When preparing financial statements, finance teams often look at net non-operating results to understand how these items affect profitability outside day-to-day operations.

Recording non-operating expenses on the income statement

Non-operating expenses are reported below operating income on the income statement. This placement separates operating performance from financing decisions, investment activity, and unusual events.

Accounting standards require significant non-operating items to be disclosed separately when they are material. Clear documentation and consistent classification make it easier to explain changes in net income to auditors, investors, and internal stakeholders.

How non-operating expenses impact key business metrics

Non-operating expenses influence how performance looks on paper, even when day-to-day operations are stable. Understanding where they show up helps finance teams explain results and avoid misreading trends.

EBITDA vs. net income

EBITDA excludes interest and other non-operating items, which makes it useful for comparing companies with different capital structures. Net income, by contrast, reflects the full impact of financing decisions and one-time events. Two companies with similar operations can report very different net income figures simply because of how they are financed.

Operating margin

Operating margin focuses on operating income relative to revenue, removing non-operating noise. A decline in operating margin usually signals a change in core efficiency, while a drop in net margin may be driven by higher interest expense or a one-time legal settlement.

Return on assets

Return on assets (ROA) is affected by non-operating expenses because they reduce net income. Analysts often adjust ROA to exclude unusually large non-operating items so they can better assess how effectively a business uses its assets to generate profit.

When presenting results, many finance teams show both GAAP figures and adjusted metrics that exclude truly one-time non-operating expenses. This approach helps stakeholders focus on sustainable performance without ignoring real costs.

Best practices for managing non-operating expenses

You can’t eliminate non-operating expenses entirely, but you can manage them deliberately. Strong oversight reduces surprises and helps stakeholders understand which costs are structural versus situational.

1. Implement regular review processes: Review non-operating expense accounts monthly or quarterly to catch misclassifications early. Assign clear ownership to a controller or senior accountant to avoid last-minute adjustments at close.
2. Budget for predictable items: Some non-operating expenses, such as interest expense, are recurring and forecastable. Build them into financial models so they don’t obscure operating trends.
3. Optimize debt management: Interest is often the largest non-operating expense and one of the few that can be actively managed. Periodic refinancing reviews can reduce costs without affecting operations.
4. Establish strong internal controls: Require executive approval for asset disposals, legal settlements, and other transactions that could generate material non-operating expenses.
5. Maintain clear documentation: Document the rationale behind how expenses are classified, especially for edge cases. This consistency is critical during audits and when explaining results to investors.
6. Communicate proactively with stakeholders: Context matters. When non-operating expenses materially affect results, explain what happened and whether the impact is likely to recur.

Handled well, non-operating expenses become a source of clarity rather than confusion, reinforcing confidence in reported performance.

How expense management software helps track non-operating expenses

Manual expense tracking makes it harder to consistently identify non-operating expenses, especially when transactions span multiple accounts, teams, or geographies. Modern expense management software helps finance teams apply classification rules early and review exceptions before they affect reporting.

Key capabilities that support better tracking include:

• Automated categorization: Rules and machine learning flag transactions that may be non-operating, such as large legal fees or unusual asset-related charges
• Real-time visibility: Expenses surface as they occur, giving finance teams time to review and reclassify items before month-end close
• Approval workflows: High-impact or unusual expenses can follow separate approval paths, reducing the risk of misclassification
• General ledger integration: Direct syncing with the GL reduces manual rework and keeps operating and non-operating expenses clearly separated
• Reporting and audit trails: Detailed reports make it easier to explain non-operating expenses to auditors, executives, and investors

Used well, these tools reduce friction in close processes and make it easier to maintain consistent expense classification as the business scales.

How Ramp simplifies tracking and categorizing non-operating expenses

Non-operating expenses like interest payments, legal settlements, and asset write-downs can wreak havoc on your financial reporting if they're not properly tracked and categorized. These irregular expenses often slip through the cracks or get miscategorized as operating costs, distorting your true business performance and making it harder to spot trends in your core operations.

Ramp's expense management software tackles this challenge with intelligent categorization features that automatically distinguish between operating and non-operating expenses. When an unusual expense hits your books, Ramp's AI-powered system flags it for review and suggests the appropriate non-operating category based on merchant data and transaction patterns.

The platform's real-time visibility gives you instant insight into all expenses as they occur, not weeks later when reconciling statements. You can create separate approval workflows for non-operating expenses, ensuring these exceptional items get the right level of scrutiny from finance leadership. Custom tags and memo fields let you add context to each transaction, making it easy to explain variances during month-end close or audit reviews.

Ramp also integrates seamlessly with your existing accounting software, automatically syncing properly categorized expenses to the right GL accounts. This eliminates the manual work of reclassifying expenses after the fact and reduces the risk of errors that can impact your financial statements.

With detailed reporting capabilities, you can easily separate operating from non-operating expenses in your analysis, giving stakeholders a clearer picture of your core business performance and helping you make more informed strategic decisions.

Save time with automated expense tracking

Beyond handling complex non-operating expenses, Ramp streamlines your entire expense management process. Configure your accounting rules once, and let automation do the heavy lifting. Your team submits expenses without worrying about classifications while your finance team reviews and approves with confidence.

Ready to see how Ramp can transform your expense tracking? Take an interactive product tour.