Extraordinary losses is an accounting term that refers to unexpected and unusual expenses or losses of an entity that are unrelated to its ordinary operations.
What are extraordinary losses? Definition of the term
Extraordinary losses can be caused by various factors, such as flood, fire, earthquake, war, natural disaster, etc. These losses are recognized in the entity’s financial statements as a separate element of expense or loss and are included in the income statement accordingly.
Records of extraordinary events
Records of extraordinary events consist of documenting all extraordinary losses that the entity has incurred during the reporting period. It is important that extraordinary events are properly documented and verified to be included in the financial statements. In order to record extraordinary events, an entity should keep appropriate documents and records, such as minutes of meetings, letters from insurers or other documents confirming the occurrence of an extraordinary event and its consequences. The recording of extraordinary events is important both for the proper recognition of extraordinary losses in the financial statements and for the possibility of claiming compensation from the insurer.
Extraordinary losses – practical examples
- Examples of extraordinary losses may include:
- Losses caused by flood or other natural disaster, such as damage to buildings, machinery or other equipment.
- Losses caused by fire, such as damage to buildings, machinery or other equipment, as well as losses related to the interruption of an entity’s operations.
- Losses caused by an earthquake, such as damage to buildings, machinery or other equipment, as well as losses related to the interruption of the unit’s operations.
