Non Operating Expense Examples

>> January 15, 2012


Non operating expenses are those which are not related with the operation of business. Every businessman can do specific commercial activities. A business can not produce and sell of furniture and financial activities. All the activities which a businessman does for getting commercial benefits in his field will be his operating business. Its all expenses will be his operating expenses. But sometime, he gets also commercial benefits for the activities which are not related to his operation. All expenses which are not related to his operation will be his non operating expenses.

Now, we are ready to explain non operating expense examples.

1st : If You are Doing Business in Product Market

For example, you are doing the business of buying and selling the product of knife as whole seller. You buy knives at maximum quantity at very low price directly from manufacturer and sell at high quantity and at higher price to retailers. Your all business expenses are relating to this.

(A) Suppose, you have more business space which you want to give it to other party on rent. To give your space on rent and getting rent is your non operating business. For this, you can pay following non-operating expenses:

a) Repair of extra space.
b) Property tax on that space.
c) Supervisor's salary for caring that space.

(B) Suppose, you have earned good money in your business of selling knife. You want to invest it in financial market like buying of shares and getting its dividend. For this, you have paid following expenses. 

a) Demat Account Opening Fees.
b) Paying of Broker fees.
c) Loss on selling shares at low prices ( *Loss is also expenses because this expense is paid in current time but our capital is reduced due to any loss like reducing of capital due to paying of expenses).
d) Bank Charges for collecting your dividend automatically.

(C) Suppose, you want to invest in construction business. For this, you become partner of sham. You are sleeping partner. You invest only small  money for its operating expenses  and get 5% share of profit or loss. At that time, following will be his non operating expenses

a) Your invested small money expenses will be your non operating expenses

b) If same partnership suffers loss, at that time, you will get 5% loss. Excess of your loss over your invested small money is also your non operating expense.

2nd : If You are Doing Business in Financial Market

In financial market, you buy and sell the shares, debentures and other financial market like mutual funds and hedge funds. This is your business. You may also be financial company, bank and other financial organisation which collects money at low rate of interest and gives it at higher rate of interest. At that time, following will be  your non operating expenses

(a) Suppose, you buy some space and sell it at profit. Paying the expenses for buying this will be your non operating expenses.

(b) Suppose, you contract with other party for doing business of buying and selling of product. All its expenses will be your non-operating expenses.

3rd : If You are Doing Business in Service Market 

Suppose, you are CA. Your work is to provide the audit service to companies. But due to this profession, you can estimate the idea of profit in different companies. You contract with your wife. Your wife started business in higher profit industry like producing of soft drinks. You are paying its all operating expenses and getting earning from this business. These all operating expenses in soft drinks will be non operating expenses of your audit service business.

Important 

1. To knowing the difference between operating expenses and non operating expenses will be helpful for comparison by calculating operating expense ratio and non operating expense ratio. Our total sales will now divide into two parts. One is for paying operating expenses and other for paying non operating expenses.

2. From calculating taxable net profit, we deduct only operating expenses from our total business expenses. 





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1 comments:

Anonymous,  October 19, 2012 at 5:26 AM  

great examples...

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