The losses that a business may experience are divided into two types: Capital losses are losses made on the sale of a fixed asset or resulting from raising money for the business. An example of a capital loss is when an investment listed in the books at $48,000 is sold for $45,000; this leads to a capital loss of $3,000. Also, a discount on the issuance of shares or debentures is a capital loss. Capital losses appear as assets in the balance sheet. Revenue losses are losses incurred in trading operations, such as losses on the sale of merchandise. As a case in point, merchandise costing $6,000 is sold for $4,000. In this situation, the loss of $2,000 is a revenue loss. Revenue losses appear in the income statement of the year in which they occur.
Capital Losses
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Revenue Losses
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Capital and Revenue Losses FAQs
Revenue losses are calculated by using the formula: Revenues - Expenses = Revenue Loss.
Capital losses are calculated by using the formula: Sales Price – Cost of Goods Sold = Capital Loss.
No, capital and revenue losses do not offset each other. Capital losses are subtracted from capital gains for tax purposes. Revenue losses have nothing to do with revenue gains. They exist on their own and must be reported separately.
A Company can carry forward its net loss or loss carryback for tax purposes.
No. A Capital loss is calculated based on the sales price of an asset after deducting costs associated with acquiring that asset; in other words, before any deductions are made for Depreciation expense. This means that the original value of an asset has no bearing on the amount of capital loss to be recognized.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
