In Finance, what is an Extraordinary Item?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum
Losses incurred by a farm due to a drought would be characterized as an extraordinary item.
Losses incurred by a farm due to a drought would be characterized as an extraordinary item.

An extraordinary item is any type of gain or loss that is unanticipated and due to some type of unusual circumstances that are not likely to be repeated. Usually, events that constitute an extraordinary item have to do with something that is outside the scope of the usual operation, and could not be controlled by the business. This type of line item is included in the accounting records of the business, and normally appears on the profit and loss statement for the period where the item occurred.

If an executive embezzles money from a corporation, the loss is an extraordinary item because it is unexpected and unlikely to reoccur.
If an executive embezzles money from a corporation, the loss is an extraordinary item because it is unexpected and unlikely to reoccur.

A common example of an extraordinary item is a loss that occurs due to an act of nature. For example, if a snowstorm would to occur in the state of Florida after the citrus growing season has commenced, the snow would likely create significant losses for the businesses that grow and sell the citrus fruits. Those losses would be noted in the profit and loss statement of the business and be identified as an extraordinary item.

Increased demand for plywood due to a high number of hurricanes could cause an extraordinary item for suppliers and sellers of lumber.
Increased demand for plywood due to a high number of hurricanes could cause an extraordinary item for suppliers and sellers of lumber.

Other types of one-time events that are outside the control of the business may take place. Should an executive of the company embezzle or otherwise steal a portion of the company assets, the loss would be recorded and considered an atypical situation. In like manner, if an unforeseen increase in demand for one of the goods produced by a company should emerge, then the demand falls off considerably after a short period of time, this may be treated as an unusual situation that is not likely to be repeated, and is classified as an extraordinary item.

Business note positive and negative extraordinary items on profit and loss statements.
Business note positive and negative extraordinary items on profit and loss statements.

In situations where more than one extraordinary item occurs within the same quarterly or annual period, each event is likely to recorded as a separate line item. Generally, the line item is descriptive but does not include a great deal of detail. That detail is provided in notes that are attached to the financial statement. By accounting for each extraordinary item separately, it is possible to avoid confusing the one-time events with the regular earnings realized in that period, while also measuring the impact of each unusual event on the overall profitability of the business.

While it is possible to record an extraordinary item at any time, the fact is that most businesses will have none of these types of unusual events to account for during most years of operation. There is some degree of subjectivity in determining what constitutes an unanticipated event or occurrence, which creates a situation where the range of activities that may be considered unusual is extremely broad. Even with the broad range of possibilities, most businesses tend to evaluate gains and losses closely, and only identify them as extraordinary items if there is an extremely high probability that the event will not occur a second time within the foreseeable future.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including , and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including , and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Discussion Comments

Dramacat5

Extraordinary items are impossible to budget, considering the very nature of such an event is that it is unexpected. However, any responsible organization will carry sufficient insurance to cover things such as disasters or embezzlement, as well as maintain a rainy day funds to cover unpredicted losses.

Financial analysts spend a great deal of time trying to "predict" these unpredictable events in order to properly prepare the organizations they represent. Extraordinary items in accounting show up on the profit & loss statement.

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    • Losses incurred by a farm due to a drought would be characterized as an extraordinary item.
      By: Johan Larson
      Losses incurred by a farm due to a drought would be characterized as an extraordinary item.
    • If an executive embezzles money from a corporation, the loss is an extraordinary item because it is unexpected and unlikely to reoccur.
      By: gstockstudio
      If an executive embezzles money from a corporation, the loss is an extraordinary item because it is unexpected and unlikely to reoccur.
    • Increased demand for plywood due to a high number of hurricanes could cause an extraordinary item for suppliers and sellers of lumber.
      By: Lisa F. Young
      Increased demand for plywood due to a high number of hurricanes could cause an extraordinary item for suppliers and sellers of lumber.
    • Business note positive and negative extraordinary items on profit and loss statements.
      By: adrian_ilie825
      Business note positive and negative extraordinary items on profit and loss statements.