Extraordinary Item

What is an Extraordinary Item in Trading?

When you delve into trading, you may come across the term Extraordinary Item. This term refers to an event or transaction that is unusual and infrequent. That means, it's something that, by its nature, does not recur regularly in a company's business dealings.

Distinguishing an Extraordinary Item

It is important to understand that an event or transaction must fulfill both these conditions – it should be unusual and infrequent – to qualify as an Extraordinary Item in trading. An example could be profits or losses from a natural disaster or expropriation of properties.

The Role of Extraordinary Items in Financial Reporting

Extraordinary Items play a crucial role in the realm of financial reporting. They often appear on a company's income statement and significantly influence a company's net income. Extraordinary Items help potential investors get a clearer picture of a company's ordinary business operations versus unusual events.

Change in Accounting for Extraordinary Items

It's worth noting that the treatment of Extraordinary Items has changed over the years. As of 2015, the Financial Accounting Standards Board (FASB) in the U.S. eliminated the Extraordinary Item classification. The reasoning behind this was to aid international accounting standard convergence and to ease the process for companies preparing their financial statements.

Conclusion: Understanding Extraordinary Items in Trading

In summary, an Extraordinary Item in trading signifies unusual and infrequent transactions or events that are clearly distinguished from normal business operations. While the Extraordinary Item classification has been removed from U.S. accepted accounting principles, the concept still holds value for traders and investors as these items can have significant impacts on a company's financial position.