Glossary · Also called Loss for the year
Net loss
The result when a business's total expenses exceed its total income for the period.
What it means
The negative profit arising when expenses exceed income, reducing the owner's capital.
Example
Income of RM40,000 against expenses of RM47,000 gives a net loss of RM7,000.
Why it matters
A net loss reduces capital and signals that the business spent more than it earned.
In practice
A net loss is the closing figure at the foot of the income statement. It arises when total expenses outweigh total income for the period. It is carried to the statement of financial position, where it reduces the owner's capital, because the business used more resources than it earned. In double entry, the loss is transferred from the income statement to the capital account, which lowers the owner's stake.
For example, gross profit is RM30,000, but rent, wages and other expenses come to RM38,000. The net loss is RM8,000, and capital falls by that amount before any drawings.
Students often confuse a net loss with a gross loss. A gross loss is unusual. It arises earlier, when the cost of goods sold exceeds turnover, before other expenses are considered. A net loss is measured after all expenses. A business can make a gross profit and still finish with a net loss.
If you are unsure how a loss flows into capital, one of our teachers can show you the entries and the statement layout step by step. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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