Net loss

Definition

Net loss occurs when a company's total expenses exceed its total revenues during a specific period. It indicates that the company has spent more money than it has earned, resulting in a negative bottom line.

5 Must Know Facts For Your Next Test

1. Net loss is reported on the income statement as the final result after all revenues and expenses are accounted for.
2. A net loss decreases the owner's equity in the business, impacting the statement of owner's equity.
3. Consistent net losses can threaten a company's financial stability and long-term viability.
4. Net loss affects cash flow but is not directly recorded on the statement of cash flows; instead, it influences operating activities.
5. A company experiencing net loss may need to implement cost-cutting measures or find new revenue sources to return to profitability.

Review Questions

Related terms

Revenue:

Total income generated from normal business operations before expenses are deducted.

Expenses:

Costs incurred by a business in the process of earning revenue.

Net Income:

The amount by which revenues exceed expenses, indicating profitability.