Gains and Losses vs. Revenue and Expenses: What’s the Difference?

Gains & Losses vs. Revenue & Expenses: An Overview

Most companies report items such as revenues, gains, expenses, and losses on their income statements. Some of these terms sound similar but there are different practical uses for gains and losses as well as for revenues and expenses. Businesses look to maximize gains and revenues while minimizing expenses and losses. They all affect overall profitability.

Gains and Losses

Gains and losses are the opposing financial results that are produced through a company’s non-primary operations and production processes. It’s considered a capital gain any time a company produces a profit or realizes increased value through secondary sources such as lawsuits, investments in financial instruments, or the disposal of assets.

A loss is realized when a company loses money through a secondary activity. The determination of gain versus loss is dependent on the book value of the asset according to the company’s financial documents when a company sells an asset. A loss will also be recorded if a company is ordered by a judge to pay to settle a lawsuit or if it loses money on a financial investment.

Gains and losses are treated differently for tax purposes depending on if they’re short-term, usually occurring in 12 months or less, or long-term, taking place over more than one year). Gains can typically be offset by corresponding losses for tax purposes.

Revenues and Expenses

Revenues and expenses aren’t opposite financial results of the same activities, unlike gains and losses. Revenue is the term used to describe income earned through the provision of a business’s primary goods or services. Expense is the term for a cost incurred in the process of producing or offering a primary business operation. Investors and analysts will typically give far more weight to these metrics than to losses or gains.

Revenues are the gross proceeds a company receives when it sells its goods or services and are sometimes simply referred to as “sales.” There’s always a set of costs involved with production, both fixed and variable. These must be deducted as expenses from revenue to compute a company’s net profit.

Expenses are the most diverse of the four terms. Expenses can be related to a multitude of different types of costs such as labor including salaries, wages, employee benefits, marketing and advertising, rent, utility bills, insurance, taxes, interest, depreciation, and amortization. Expenses can also be recorded into any number of line items on an income statement to reflect the particular type of expense.

Several financial ratios and metrics take account of revenues and expenses such as the frequently used EBITDA metric: earnings before interest, taxes, depreciation, and amortization. It’s revenues less expenses related to the production of goods sold.

The Bottom Line

Perhaps the clearest way to delineate gains and losses from revenues and expenses is their role in how a business functions. Bains and losses represent the financial performance of non-operating activities. Revenues and expenses relate to the core business and often generate the majority of sales and related costs that enable a company to continue to operate.