Capital and revenue losses
Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021
The losses suffered by a business concern may be divided into two types:-
- Capital losses
- Revenue losses
Capital losses means losses made on the sale of a fixed asset or a loss resulting from raising money for the business.
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 are the losses which are incurred in the trading operation, such as the loss on sale of merchandise.
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.