for Teachers for Schools for Enterprise
for Teachers for Schools for Enterprise
Course Navigator
Net Profit: Definition & CalculationNext Lesson 

Net Loss: Definition & Formula

Chapter 1 /  Lesson 23   Transcript
Try it risk-free for 30 days

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Net Profit: Definition & Calculation

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:00 What Is Net Loss?
  • 0:50 Formula For Net Loss
  • 1:20 Example Of Net Loss
  • 2:55 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Login or Sign up

Timeline
Autoplay
Autoplay
Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and is currently working on his PhD in Higher Education Administration.

Business owners hope that each period, the money brought in is more than the money paid out. But that's not always the case. In this lesson, you'll learn the definition and formula for net loss, and why it can be bad news for business owners.

What Is Net Loss?

An income statement is a financial report that takes the total of revenues and expenses for a certain period of time and calculates the bottom line. Ideally, the bottom line is positive, meaning that the business had more revenue than expenses, but at some point, most businesses experience the opposite - a period of time where the total of all expenses and costs exceed the revenues earned. When that happens, the business has suffered a net loss.

For all practical purposes, there is no difference between a 'net' loss and just a loss. Because generally-accepted accounting principles (or GAAP) in the United States require an income statement to report gross profit and net profit, the term 'net' sticks around to accompany the loss, in the (hopefully) rare instances a net loss does occur.

Formula for Net Loss

The formula for net loss is simply:

Total Revenue - Total Expenses = Net Profit or Loss

It is important to remember that based on the matching principle of accounting, the total revenues and total expenses used in the net profit/loss formula represent the same period of time. For example, if a business owner requests their accountant prepare quarterly financial statements, then the income statement for the first quarter of the year (January through March) will include all revenues earned in that quarter and all expenses earned in that same quarter.

Example of Net Loss

For the sake of simplicity, let's take a look at the monthly revenues and expenses for Patty's novelty t-shirt printer 'Tee It Up!' Patty purchases t-shirts in bulk, prints the designs customers submit, and sends the shirts out for delivery. Through Patty's website, customers can select the type of shirt and size, and can upload their design.

Patty runs the whole show herself, but to make sure she knows it is a profitable venture, she pays herself a salary of $5,000 per quarter. Below is Patty's income statement, sometimes called a profit and loss statement, for the first quarter of 2013.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days
Description

Earning College Credit

Did you know… We have over 160 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Research Schools, Degrees & Careers

Get the unbiased info you need to find the right school.

Browse Articles By Category

Browse an area of study or degree level.

Recommended Articles
You are viewing lesson Lesson 23 in chapter 1 of the course:

 Back To Course

Financial Accounting: Homework Help Resource

7 chapters | 164 lessons

Ch 1. Introduction to Accounting: Homework Help
Ch 2. Financial Statements in Accounting:...

Net Loss: Definition & Formula Related Study Materials

Create an account to start this course today
Try it risk-free for 30 days!
Create An Account

Explore our library of over 75,000 lessons

Browse by subject
Support