Capital and revenue losses

The losses suffered by a business concern may be divided into two types:-

  1. Capital losses
  2. Revenue losses

Capital losses

Capital losses means losses made on the sale of a fixed asset or a loss resulting from raising money for the business.

Example

Investment stands in the books at $48,000, is sold for $45,000, the loss of $3,000 is a capital loss. Discount on issue of shares or debentures is a capital loss. Capital loss is shown as an asset in the Balance Sheet:

Revenue losses

Revenue losses are the losses which are incurred in the trading operation, such as the loss on sale of merchandise.

Example

Merchandise costing $6,000 sold for $4,000, the loss of $2,000 is a revenue loss. Revenue losses appear in the income statement in the year in which they occur.

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