Loss or gain means one thing or the other to every professional. In business, those who lack detailed accounting knowledge may see gains and losses in a different way from how the accountant sees it. In this article, the focus is on the differences and similarities between these two concepts.
Differences between gain and loss
Gains arising from the excess of disposal value over cost (or residual) value. But loss is the excess of cost over disposal. Note that the term disposal is different from sales or revenue. Disposal emanates from the sale of physical or investment assets.
Gains are added to profits made by the business in a particular period of time. Losses, on the other hand, are deducted from profits and other income of a business.
Gain is not the excess of total business income over total business expenses. However loss, in addition to the above, is the excess of total business expenses over total business income.
Gain is derived only from business assets such as trading assets and available for sale assets. Loss, on the other hand, occurred from both assets and expenses.
Similarities between gain and loss
Gains and losses arise mostly on the sale of noncurrent assets.
Unrealized gains and losses occurred on trading financial assets and available for sale assets.
Realized gains and losses usually occurred on physical assets.
Gains and losses may be as a result of volatility in financial assets and foreign exchange.
Both are recorded in the statement of profit and loss and other comprehensive income.
In conclusion, gains and losses affect businesses in various ways. Although, gains are not profits and therefore, not an excess of income over expenses. Losses are excess of expenses over income.