What is an Infrequent Gain or Loss?

//What is an Infrequent Gain or Loss?
What is an Infrequent Gain or Loss? 2017-10-05T03:01:33+00:00

Definition: An infrequent gain or loss is an economic gain or loss that is not expected to happen again during the normal course of business. In other words, it’s exactly what it sounds like. It’s a gain or loss that occurred in the current period that probably will never happen again.

What Does Infrequent Gain or Loss Mean?

The infrequent characteristic is only one requirement to be classified as an extraordinary item on the financial statements. In order to be considered an extraordinary item the gain or loss must be both infrequent and unusual.

This means that the gain or loss happened outside of the company operations and will most likely never happen again.

Example

An example of an extraordinary item could be natural disaster depending on your geographical location. Take hurricane in Michigan for example. Michigan is a long way away from the ocean, so it doesn’t get hurricanes. Thus, if Jim’s Machine Shop was hit by a hurricane and his building flooded, it would be considered an extraordinary event because the loss was caused by something outside of Jim’s normal operations and it is unlikely to ever happen again.

If Jim’s shop were located in southern Florida; however, this would not be considered extraordinary. Remember an extraordinary item must be both unusual and infrequent. Hurricanes in Florida happen every year. They are actually quite frequent.

Extraordinary items are reported in a separate section of the income statement because it allows creditors and investors to look at the operations separated from these one-time occurrences.

If an infrequent gain or loss is only infrequent and not unusual, it should be reported in the continuing operations section of the income statement after the normal revenues and expenses. This way users of the financial statements can see that the event occurred in normal operations, but it most likely will not happen again.