Below the Line
Modified on 2012/07/13 15:02 by swathen — Categorized as: Uncategorized
Accounting Income vs. Economic Income
Accrual Based Accounting
Below the Line: Definition
Below the line, defined as income or expense in accounting which have no noticeable effect on company profits in the current period, is an unofficial term. Below the line is used by people in-the-know who deal with above and below the line items and account for expenses regularly. They know where to place each in credit and debit fields of accounts.
Below the Line: Explanation
Below the line explained
, as an industry term, expenses which are not accounted for. These extraordinary expenses, perhaps relevant to another accounting period, are not important in this period. This means that they will be left out: below the line. They may be included in later statements.
Extraordinary expenses are those which are not related to the normal business operations of a company. these are excluded because they are one time and do not relate, overall, to company finances. An example of an extraordinary expense includes the sale of a warehousing plant for a manufacturer. Though these expenses or incomes should still be accounted for they should not be included in company financials. Rather, they should be added to income after company financials when regular operations are completed.
Accountants are the experts in what lies below the line or above the line. One should consult a trained accountant before passing judgement on this matter as it may have great consequences.
Below the line accounting
is more serious than it may appear.
Below the Line: Example
Ken is the CEO of a company which sells electronic parts to wholesale clients. His business, started as a function of the company he was then working in, has grown to be quite successful.
In this period, however, the recession has damaged his business. Ken is worried that his investors will see this as a sign of weakness rather than a temporary issue.
Ken considers including the sale of one of his distribution warehouses in his company financials. This will create the appearance of sound income. Ken knows that this income is part of the
below the line deductions list
but feels that it will not matter in the long run.
After debating the issue for a while Ken decides not to include the income. It belongs on the
below the line income statement
. Ken knows he will come under the scrutiny of his investors but wants to remain honest. Though he may not feel the most comfortable with this, he can receive honest assistance from company stakeholders this way. Ken, ultimately, realizes that honesty is the best policy.