What is a Nonrecurring Gain Or Loss

A nonrecurring gain or loss is a term for a one-time or highly infrequent profit or loss not arising from a company’s normal course of business operations. One-time gains or losses are reported separately in a corporation's income statement — net of income taxes — and are excluded from earnings per share (EPS) calculations.

BREAKING DOWN Nonrecurring Gain Or Loss

Companies also sometimes blur the line by referring to nonrecurring gains and losses such as restructuring losses as "extraordinary charges" for accounting purposes. Under Generally Accepted Accounting Principles (GAAP), to meet this criteria, items must “possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity” and “be of a type that would not reasonably be expected to recur in the foreseeable future.”

Capital gains from the sale of land, gains from investments or sales of business divisions and plans are all examples of nonrecurring gains. Casualty losses such as those from theft, fire or natural disaster are extraordinary losses. Asset write downs, settlement and litigation fees are examples of items that can be seen as nonrecurring losses. Write-offs or write-downs relating to normal business expenses (i.e., inventory) are not be considered nonrecurring losses unless they are due to one-time events, such as a natural disaster.

The Financial Accounting Standards Board (FASB), the body responsible for setting and maintaining disclosure rules for U.S. companies, also requires them to provide details for items they have classified as extraordinary in the footnotes to their financial statements. This allows analysts, investors, shareholders and other stakeholders the opportunity to scrutinize them in determining whether to exclude them from earnings forecasts.

Investors need to carefully examine a company's financial statements to see what types of nonrecurring gains and losses a company they are holding posts and how frequently managements engage in these types of transactions. While by their very nature nonrecurring gains and losses are meant to occur very infrequently, the reality is that companies often understate their expense levels by classifying some items as nonrecurring.

FASB issued an accounting standards update in 2015 concerning the accounting treatment for extraordinary and unusual items. It was designed to streamline and reduce the costs involved in preparing financial statements. Items classified as nonrecurring only have to be meet one of the criteria above: they must be either unusual or infrequent. As a result, companies no longer have to display them on a separate line on their income statements.