Loss

Definition

Loss is the amount by which expenses exceed revenues within a given accounting period. It indicates that a company has spent more money than it has earned during that time frame.

5 Must Know Facts For Your Next Test

1. Losses are reported on the income statement and reduce overall net income.
2. A consistent pattern of losses may indicate financial instability or poor management.
3. Loss amounts are also reflected in the statement of owner’s equity, reducing the owner's equity.
4. In the balance sheet, accumulated losses can lead to negative retained earnings.
5. Operating losses specifically refer to losses from core business activities, not from secondary activities like investments.

Review Questions

Related terms

Revenue:

The total amount of money generated from sales or services before expenses are deducted.

Expense: Costs incurred in the process of earning revenue.

Net Income:

The amount by which revenues exceed expenses, resulting in profit.