Loss definition

What is a Loss?

A loss is an excess of expenses over revenues, either for a single business transaction or in reference to the sum of all transactions for an accounting period. The presence of a loss for an accounting period is closely watched by investors and creditors, since it can signal a decline in the creditworthiness of a business. This is particularly the case when the loss is derived from just the operational activities of a business.

The concept can also refer to the loss in value of an asset. In this case, it is considered an unrealized loss if you have not yet sold the asset, and so cannot be claimed as a tax deduction. Conversely, if you have incurred the loss by selling the asset, then you can claim a tax deduction on the amount of the loss.

Loss FAQs

How does a loss differ from an expense?

An expense is a cost incurred during normal business operations, such as salaries, rent, or utilities. A loss results from an unfavorable event or transaction outside ordinary revenue-generating activities, such as selling equipment below its carrying amount. Both reduce net income, but they arise from different types of activities.