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How to decide whether a gain or loss is recorded to income from operations or non-operating income?

The classification is really quite subjective and is ultimately up to the company. When a company experiences an event and is deciding whether or not its normal operations or non-operating, they should assess the likelihood of the event occurring. Has it happened in the past? Will it happen again in the next few years?

For example, if the company incurs hail damage, and a hailstorm happens each year, then that would not be a surprise and the loss should be reported in income from operations. However, if the hailstorm happened in Hawaii, and a hailstorm has never happened there, then that even would be considered rare / unlikely. In that case, the gain or loss should be classified to non-operating income (loss).

The visual below lays out some buzzwords or phrases to help you assess how the event should be classified.


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