Meaning of Extraordinary Expenses Part I

The proper booking of your expenses is essential in ongoing business operations. Here, make extraordinary expenses a special depreciation is. But what belongs to the category of extraordinary expenses and where they are listed in your financial statements? You will find out in this post.

What are extraordinary expenses?

Extraordinary expenses must be related to your business, but are generally more of an exception. So they do not occur periodically , but are in addition to the normal costs of your operation. The term “extraordinary effort ” is often used as a synonym in business administration .


A storm damaged the roof of your production facility. The cost of repair you can claim as extraordinary expenses.

What are Extraordinary Costs?

Extraordinary costs are costs that are not related to the ordinary course of business , but are important for the purpose of your company.


Extraordinary costs can be the procurement of material for the repair of the business premises.

Which expenses are considered extraordinary according to the German Commercial Code?

The Commercial Code , HGB for short, regulates the items for extraordinary income and extraordinary expenses as follows:

Under the items extraordinary income and extraordinary expenses, income and expenses are to be shown that are incurred outside of the ordinary business activities of the corporation.

Quote from Section 277 (4) of the German Commercial Code

These are costs that are not incurred for normal business operations , which is why they would falsify the actual annual result. For this reason, separate information in your annual financial statements is unavoidable. According to this definition, extraordinary costs can be, for example, back tax payments. Repairs after a fire or storm are also among the extraordinary costs of a company.

Difference between expenses and costs

Business administration differentiates between costs and expenses . Costs arise in connection with the operational freight transport of your company. That is, they are directly related to the purpose of your company. It is important that the materials used have not yet been processed into a commercial good.


An expense is understood to mean the value of a service or goods that have been consumed . An expense reduces the company’s capital for the specified period. The reduction can be of non-operational as well as operational origin. In order to be able to speak of an expense, a business transaction with an impact on income must occur. The effort is also often referred to as expenses. In accounting, it is completely irrelevant which term you use.

In principle, the principle applies that all costs can be seen as expenses. At the same time, however, not all expenses can be described as costs.

What expenses do you know from your company?

During the normal course of business, you will face different types of expenses, which can be broken down into the following groups:

  • Non-period expenses: This includes all expenses incurred through the normal operating process, which, however, have to be assigned to a different period than the current one. A typical example of this is the trade tax , which arose in the previous year but does not have to be paid until the current financial year.
  • Non-operating expenses: Non-operating expenses are all expenses that are unrelated to your company. Typical, non-company expenses are donations to non-profit associations or losses from speculative transactions.
  • Extraordinary expenses: These are typical expenses that arise from normal business operations, but are rather atypical. This is the case if, for example, your production facility needs to be renovated or repaired due to a storm.
  • Neutral expenses: The neutral expenses are not related to your actual company. In addition, neutral expenses arise very irregularly and at different levels. A typical example of this are the tax back payments. They are not taken into account in the costing of your operating profit.

Significance of the distinction between costs and expenses in cost and performance accounting

A separation of the two items is inevitable within your cost and performance accounting. As you already know, the costs arise in producing or providing services. They do not reduce the operating profit, but are merely a conversion of the company’s own finances.

Expenses, on the other hand, are to be understood as a reduction in company capital. They do not include payments to the shareholders of your company, nor do they reduce operating profits.

The purpose of separating costs and expenses within cost and performance accounting should be explained in more detail using the following example:


A catering company donates the culinary supplies for a club festival to the relevant organization. Since it is a voluntary donation – not a sale – he cannot include the cost of catering in the calculation. Otherwise this item would appear as a loss in the annual financial statements, since no income can be seen for expenditure.

For a precise evaluation of your company, it is important that you know the individual cost components, which then result in a corresponding expenditure. In addition, you have to be able to determine exactly how often these costs and expenses arise in order to receive a correct analysis of your production and sales process.

What is cost and performance accounting?

According to Topbbacolleges, the cost and performance accounting is used for planning , control and information about the costs and revenues of your company. So it should give you a better overview of your expenses. The cost accounting records all expenses incurred by your company and analyzes what they are for. This is how you can optimize your business operations .

During the analysis, a comparison is made between the target costs and the actual costs . Target costs are all expenses that are planned in advance. In doing so, not only the purpose but also the exact amount of the costs is considered. The actual costs are the expenses actually incurred for the respective purpose.


You want to renovate the office space of your company and plan around 20,000 euros for it. These estimated 20,000 euros are so-called target costs, because they should not be exceeded if possible. After the renovation, you discover that you have spent exactly € 19,257.58. Your actual costs are therefore below the target costs.

The cost accounting is based on a fixed scheme, which can be divided into the following steps:

  • The cost type calculation : Here you determine which costs are exactly incurred and for which business area they were used. The breakdown can be according to production factors (personnel, material, premises, etc.) or according to function (production, sales, administration, etc.).
  • The cost center accounting : If you make a breakdown into overhead costs, you must first determine which cost centers these are distributed in detail. A division into function, the spatial division within your company or the area of ​​responsibility is carried out.
  • The cost accounting : The individual outputs are assigned to specific products or services for which the costs are incurred.

The analysis of the cost accounting is important for the evaluation of your corporate strategy as well as for the pricing policy of your company and the sales policy. You can also identify weaknesses in the provision, process and production program planning.

Extraordinary Expenses 1