For a nonfinancial firm, are depreciation expenses and interest expense included or excluded from operating expenses in the income statement? ____Depreciation expense______Interest expenses a)___Included_________________Included b)___Included_________________Excluded c)___Excluded_________________Included d)___Excluded_________________Excluded what and why?
Depreciation expense is included. Interest expense is NOT Included. So choice B. Sales -COGS -Depr -SGA (Sometimes Depr is included in the COGS) And up until here is the Operating Part. -------- EBIT -Int ----- EBT - Tax ----- NI from continuing operations ------ CP
nearly every income statement i’ve ever reviewed (and its been many), interest expense IS included as an operating expense. These are financial statements that have been audited by top firms as well as local po-dunk accounting offices as well… nonetheless, they have all been US (GAAP based) and i recall interest expenses almost always being an operating expenses line item on the income statement… so what gives???.. is this just a reporting convention that is technically incorrect, yet common???
I will have to agree with cpk123. Char-Lee, are you sure you are not confusing operating expense with an operating cash flow? Earnings Before Interest & Taxes is usually listed after operating & non-operating expenses have been subtracted. Interest expense, however, is an operating cash flow under U.S. GAAP.
yeah i’m sure… good point though… what i’m saying is that of all the income statements i’ve seen, interest expense is often shown as an operating expenses, and if this is technically incorrect why do so many statements show interest expense this way… (i have seen it both ways) I’m a credit analyst, so one of the first things i do to an income statement is add back Int, Dep, and amortization (plus any other necessary adjustments) to estimate DSCR (debt service coverage ratios)… so this is something i see regularly…and what i observe is interest expense is often shown as an operating expense in presentation… and my question is why?
It may be operating exp for financial firms.
Darien is correct. For non-financial firms (like manufacturing) interest expense is non-operating but for financial firms (banks etc.) it is included as operating expense