Incidental operations refer to secondary or peripheral activities within a business that are not part of its main line of business or primary operations. These activities are not the main source of revenue for the company, but they support the company’s primary operations or provide an additional source of income.
For example, a manufacturing company’s primary operations might include designing, producing, and selling its products. However, the company might also have incidental operations such as a small cafeteria on the premises to provide meals for employees, maintenance services for its equipment, or even leasing some of its unused office space to other businesses.
While these operations are not the main focus of the business, they can be important for overall operational efficiency, employee well-being, and may contribute to the company’s total revenue.
In terms of financial reporting, the revenues, costs, and profits from incidental operations are often reported separately from those of the main operations, to give a clear picture of the performance of the main line of business. These may be reported as ‘ Other Income’ or ‘ Non-operating Income‘ in the company’s income statement. However, it’s important to note that accounting practices can vary, so the specific way these are reported can differ from one company to another.
Example of Incidental Operations
Let’s consider the example of a university.
The primary operation of a university is to provide education. This includes activities such as conducting classes, running academic programs, carrying out research, and granting degrees. These activities are the university’s main source of income, typically through tuition fees, government funding, and research grants.
However, a university also has several incidental operations. For example:
- Housing: Many universities operate dormitories or other types of student housing. While this is not part of the university’s primary educational mission, it is an important service for many students and can also generate revenue for the university.
- Food Services: Universities often run cafeterias or other food services on campus. Again, this is not part of the university’s primary operation, but it supports the main operation by providing a necessary service to students and staff.
- Bookstores: University bookstores, selling textbooks, merchandise, and other items, can be another example of an incidental operation. The primary function of a bookstore is to provide necessary resources for students, but it also generates additional revenue.
- Event Hosting: Some universities have conference centers, sports facilities, or auditoriums that they rent out for events. This is a secondary operation, but it can generate significant income.
These incidental operations support the university’s primary mission and also contribute to its total revenue. However, they are not the main focus of the university’s activities, and their revenues and expenses would typically be accounted for separately from those of the primary operations in the university’s financial statements.