Gains

Definition

Gains are increases in equity from peripheral or incidental transactions of an entity. They differ from revenue, which stems from the main operations of a business.

5 Must Know Facts For Your Next Test

1. Gains are reported on the income statement and contribute to net income.
2. They can result from the sale of assets, investments, or other non-operating activities.
3. Gains are recognized when they are realized or realizable and earned.
4. Unlike revenues, gains do not stem from the primary activities of a business.
5. Accounting for gains follows the accrual accounting principles where they are recorded when earned, not necessarily when cash is received.

Review Questions

• What distinguishes gains from revenue on an income statement?
• When are gains recognized according to accrual accounting principles?
• How do gains impact net income on financial statements?

Related terms

Revenue:

Inflows of economic benefits during a period arising in the course of ordinary activities.

Net Income:

The total profit of a company after all expenses and taxes have been deducted from total revenue.

Accrual Accounting:

An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.