Extraordinary or exceptional items are significant one-off gains or costs outside normal trading — for example, a large asset disposal, a restructuring cost, an insurance settlement or a major write-down. They flow through to net profit for the period, which means a single year’s bottom line can look far better or worse than the underlying business actually performed.
The usual approach when evaluating performance is to identify these items and consider profit both with and without them. That gives you a headline figure, which is what the statutory accounts report, and an underlying figure, which is a better guide to what the business normally produces and is likely to repeat.
Two cautions. First, “exceptional” can be applied inconsistently — a cost that recurs every few years is not genuinely one-off, and repeated restructuring charges deserve scrutiny. Second, some exceptional items are non-cash, so their effect on net profit and their effect on the bank balance are quite different.
Note also that UK accounting standards have moved away from a formal “extraordinary items” category, and presentation depends on the framework your accounts are prepared under. This is general information rather than accounting advice — your accountant should confirm how any specific item is classified and disclosed.
If you are putting accounts in front of a lender, being able to explain an unusual item clearly and briefly is generally more helpful than leaving it to be queried later.