Legal Definitions - net loss

A net loss occurs when the total expenses, costs, or outflows of an individual, business, or investment exceed its total revenues, income, or inflows over a specific accounting period. Essentially, it means that more money was spent or lost than was earned or gained, resulting in a negative financial outcome.

• Example 1: A Small Business Operating for a Quarter

  Imagine "The Daily Grind," a new coffee shop. In its first quarter of operation, the shop generated $50,000 in sales (revenue). However, its expenses for that same quarter included $15,000 for rent, $20,000 for employee salaries, $10,000 for coffee beans and supplies, and $8,000 for utilities and marketing. The total expenses amounted to $53,000. Since the expenses ($53,000) exceeded the revenue ($50,000), The Daily Grind experienced a net loss of $3,000 for that quarter.

• Example 2: An Individual's Investment Portfolio

  Consider an investor, Sarah, who manages a stock portfolio. Over the past year, her portfolio generated $2,000 in dividends and $3,000 in capital gains from selling some stocks at a profit. However, she also incurred $1,500 in brokerage fees and realized a $6,000 capital loss from selling other stocks that had declined in value. Her total income and gains were $5,000 ($2,000 + $3,000), but her total costs and losses were $7,500 ($1,500 + $6,000). For the year, Sarah's investment portfolio experienced a net loss of $2,500.

• Example 3: A Non-Profit Organization's Fundraising Event

  A local animal shelter, "Paws & Claws," organized a charity gala to raise funds. They sold tickets and received direct donations at the event, totaling $25,000. However, the costs associated with hosting the gala included $10,000 for venue rental, $8,000 for catering, $3,000 for entertainment, and $5,000 for marketing and staff. The total expenses for the event were $26,000. Despite raising a significant amount, the gala itself resulted in a net loss of $1,000, meaning the event cost more to put on than it brought in directly.