Above The Line

Business, Legal & Accounting Glossary

Definition: Above The Line


Above The Line

Quick Summary of Above The Line


The “line” generally refers to gross profit. Above that line on the income statement, typically, are sales and COGS (cost of goods sold) or COS (cost of sales or cost of services). Below the line are operating expenses, interest, and taxes.




What is the dictionary definition of Above The Line?

Dictionary Definition


Denotes those entries printed above the horizontal line on a company’s profit and loss account that separates profit (and/or loss) from entries showing how said profit is distributed.

 


Full Definition of Above The Line


Revenue and expenses generated by a business that have a direct impact on reported profits are referred to as above the line. In practise, the term refers to all activity that is disclosed on an organization’s income statement. The phrase does not relate to any other activity that has no bearing on the business’s finance or cash flows. For instance, cash received from the sale of business stock are not considered above the line. On the other hand, the sale of items and accompanying costs are deemed to be above the line.

A different understanding of the term “above the line” is that it refers to a business’s gross margin. Revenues and cost of products sold are considered above the line in this interpretation, while all other expenses (including operational expenses, interest, and taxes) are considered below the line.

Difference Between Above the Line and Below the Line Expenses

Above-the-line expenses are more likely to be recurring, whereas below-the-line expenses are less likely to be recurring (unusual). Furthermore, above-the-line expenses are associated with business operations, whereas below-the-line expenses are more likely to be associated with loss events, taxes, or financial transactions.


Synonyms For Above The Line


above average


Above The Line FAQ's


What Does Above The Line Mean?

Prior to the introduction of Financial Report Standard 3, Reporting Financial Performance, in Oct. 1992, It was understood that any exceptional items that were within the ordinary activities of the business were shown “above the line”, whilst any extraordinary items outside of the ordinary activities of the business were shown below it (below the line).

There was, however, large criticism that the definitions of exceptional and extraordinary items may feasibly be manipulated to improve earning per share figures.

For example; if a property was sold at a large profit, it could have potentially been interpreted as a exceptional item and used to bolster the earnings per share; whereas if a property was sold at a loss; it could be listed as an extraordinary item; and thus listed below the line in such a way that was none detrimental to earning per share figures.

With the introduction of FRS 3, almost all items previously defined as extraordinary items were redefined as exceptional; Under current UK accounting practices, as detailed in the Financial Reporting Standard Applicable in the UK and Republic Of Ireland, all such items are shown above the line and included in the Earnings per share.

 


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Definition Sources


Definitions for Above The Line are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 13th April, 2022 | 0 Views.