Other income that records in the income statement normally refers to the types of incomes that are not related to or generate from the main operation of an entity.
Those incomes included a gain on disposal of assets, gain on revaluation of assets, interest incomes from sales on credit which is overdue, interest from the savings account, interest from fixed deposit, and similar kind.
The other income that generally records in the income statement is the aggregation of these small incomes together. And generally, it should not exceed 10% of total income. If it does, it should be recorded as the revenues.
In income statement, other income is presented after the other gross profit.
For example, during the year the company make revenue USD500,000, cost of sales USD300,000 and other income USD5,000, then the extract P&L of the company is as following:
Revenue = 500,000
COGD = (300,000)
Gross profit = 200,000
Other income = 1,000
There is no specific accounting standard said about what kind of income should be recorded in the categories of other income; however, we can use some criteria to determine whether income should be recorded in Others or the main source of income. Let check the explanation below.
The recognition of other income in the income statement should be the same criteria to the recognition revenue where the risks and reward are transferred.
The first thing we can use to determine whether incomes are the other’s income or not is by analyzing the nature of them against the core business product services or operation.
For example, the company runs its business by selling auto cars to local people, and recently, the company just charge the interest to customers who make late payment longer than the due date.
This kind of income is not from the main operation of the company, therefore, we should records it to other’s income in the income statement.
Another example is the selling of fixed assets. The company sells fixed assets and it gains 50,000 USD if we compare net book value to the selling price of assets. This income also charged to other’s income.
However, there is some argument that what if the income from the non-main operation but there are the larges amounts of them. Let say 10% compare to the income from the main operation.
In this case, this revenue should not records as other revenue. It should be recorded in the revenue section yet different lines from main revenues.
The following are the list o others income that should be recorded in the others income section in the income statement:
- Income from the interest that deposit in the banks
- Income from the selling of non-current assets
- Revaluation gain on fixed assets
- Interest charged from customers ( for the non-financial institution)
- Gain on the exchange rate
- The penalty from the employee, customers, and suppliers