Net loss is the excess of expenses over revenues. All expenses are included in this calculation, including the effects of income taxes. For example, revenues of $900,000 and expenses of $1,000,000 yield a net loss of $100,000.
Net losses are commonly experienced when a business is just starting up; in this situation, expenses must be incurred to operate the business and create new products, while there may be few sales. Over a period of time, however, a business must eliminate its net losses, or risk using up its cash reserves and going out of business.
The net loss concept is useful for determining the amount of income taxes owed, since a net loss in one period can be used to offset the taxable income in another period, resulting in a reduced income tax liability.
The net loss appears at the bottom of the income statement, after all line items associated with revenues and expenses.