net loss

Examples of net loss in the following topics:

• Accounting Methodologies: Amortized Cost, Fair Value, and Equity

  • These securities are reported at fair value, with unrealized gains and losses included in earnings.
  • These securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity (Other Comprehensive Income).
  • The investor's proportional share of the associate company's net income increases the investment (a net loss decreases the investment), and proportional payment of dividends decreases it.
  • In the investor's income statement, the proportional share of the investee's net income or net loss is reported as a single-line item.The ownership of more than 50% of voting stock creates a subsidiary.

• Overview of Income Tax Accounting

  • Federal income tax law, a net operating loss (NOL) occurs when certain tax-deductible expenses exceed taxable revenues for a taxable year.
  • If a company realizes a net loss for tax purposes, the IRS allows the company to offset this loss against prior year's taxable income (which could result in a refund of taxes paid in prior periods).
  • The company may carry those losses back three years.
  • If the company doesn't have the sufficient taxable income in the past three years to absorb the loss, then it may carry the remaining losses forward for 15 years.
  • This allows the company to deduct the loss against future taxable income.

• Relationships Between Statements

  • If revenue exceeds expenses for the period then a net income occurs.
  • If expenses exceed revenue then a net loss is the result.
  • The income statement, specifically, net income reconciles the beginning (prior ending period) balance sheet to the current balance sheet.
  • These changes usually consist of the addition of net income (or deduction of net loss) and the deduction of dividends.
  • That is, the net change in the balance sheet accounts will not equal net income.

• Operating Expenses, Non-Operating Expenses, and Net Income

  • Operating expenses and non operating expenses are deducted from revenue to yield net income.
  • When net income is positive, it is called profit.
  • When negative, it is a loss.
  • Net income increases when assets increase relative to liabilities.
  • Operating expenses, non operating expenses and net income are three key areas of the income statement.

• Preparation of the Statement of Cash Flows: Indirect Method

  • This leaves us with the amount of $9,000 for net income.
  • items that were included in net income but did not affect cash.
  • An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income.
  • This method converts accrual-basis net income (or loss) into cash flow by using a series of additions and deductions.
  • This leaves us with the amount of $9,000 for net income.

• Introduction to the Retained Earning Statement

  • Generally, retained earnings are the accumulated net income of the corporation (proprietorship or partnership) minus dividends distributed to stockholders.
  • Line items for the retained earnings statement typically include profits or losses from operations, dividends paid, issue or redemption of stock, and any other items charged or credited to retained earnings. .
  • Comprehensive income is the sum of net income and other items that must bypass the income statement because they have not been realized, including items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses.
  • The retained earnings account on the balance sheet represents an accumulation of earnings since net profits and losses are added/subtracted from the account from period to period.
  • Ending Retained Earnings = Beginning Retained Earnings − Dividends Paid + Net Income.

• Goodwill Impairment

  • A software company has net assets valued at $1 million, but the company's overall value (including brand, customers, intellectual capital) is valued at $10 million.
  • Year end calculations reveal the goodwill is valued at $8 million and an impairment loss of $1 million is recorded as a debit to Loss on Goodwill Impairment on the income statement and a credit to Accumulated Impairment Losses on the balance sheet (disclosed as a contra asset account to goodwill).
  • If there is an indication that the book value of goodwill is greater than the recoverable value of net assets, an assessment of the recoverable value is made, and if the suspicion is correct, then an impairment expense is recorded.
  • Goodwill's value on the balance sheet is reported at net of accumulated impairment loss, a contra asset account; the current impairment loss is reported on the income statement.
  • According IAS 36, reversal of goodwill impairment losses are not allowed.

• Cost of Buildings

  • Since buildings are subject to depreciation, their cost is adjusted by accumulated depreciation to arrive at their net carrying value on the balance sheet.
  • The building's net carrying value or net book value, on the balance sheet is $110,000.
  • If at a future date a building is sold due to a business relocation or other reason, any gain or loss on the sale is based on the difference between the building's net book value and the market sales price.
  • If the sale results in a gain, the excess received over the building's net book value is disclosed on the income statement as an increase to the accounting period's income.
  • If the sale results in a loss and the business receives less than book value, the loss is also disclosed on the income statement as a decrease to income.

• Income Statement Analyses

  • Income statement (also referred to as profit and loss statement (P&L), revenue statement, statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as Net Profit or the "bottom line").
  • In business, net income also referred to as the bottom line, net profit, or net earnings is an entity's income minus expenses for an accounting period.
  • It is computed as the residual of all revenues and gains over all expenses and losses for the period.
  • Earnings per Share = (Net Income - Preferred Dividends) / Shares of Stock Outstanding
  • It is calculated by dividing the operating expenses by the net sales.

• Loss Contingencies

  • A footnote can also be included to describe the nature and intent of the loss.
  • The likelihood of the loss is described as probable, reasonably possible, or remote.
  • At least a minimum amount of the loss expected to be incurred is accrued.
  • For losses that are material, but may not occur and their amounts cannot be estimated, a note to the financial statements disclosing the loss contingency is reported.
  • The indirect method adjusts net income (rather than adjusting individual items in the income statement).