IAAO Managers Practice Test 2025 – Complete Exam Prep Guide

Mortgage expenses in net income statements are typically considered non-operational expenses. This classification is based on the idea that mortgage expenses, such as interest payments, do not directly relate to the core operations of the business but rather to its financing structure. Because net income is intended to reflect the performance of a company's operational activities, netting out these expenses clarifies the financial outcomes generated from the company's operations alone.

When mortgage expenses are classified as non-operational, it allows stakeholders to better assess the profitability and efficiency of a company's primary business activities without the influence of its financing costs. This can ultimately provide a clearer picture of a company’s operational success, separating the effects of financing arrangements from those of everyday business profits. For businesses that own their premises outright or that manage operations without relying heavily on debt financing, these expenses might not directly impact the operations being gauged within the net income statement, which is why they are categorized in this way.