Accountancy · Ch 1 — Introduction to Accounting
Gain
Gain
Gain
A gain is a profit that arises from events or transactions which are incidental to the normal business operations. This means the business did not set out to earn this profit as part of its main activities — it happened as a side effect of something else.
For example, when a company sells a piece of machinery it used in production, the sale is not its regular business of making and selling goods. If the sale price is higher than the machine's book value, the excess is a gain. Similarly, winning a court case and receiving damages, or an unexpected rise in the market value of an asset, also produce gains.
Gains are not revenue. Revenue comes from the core, regular activities of the business (like selling inventory or providing services). Gains come from non‑operating, irregular events.
Because gains are not part of the main business, they are shown separately in the Profit & Loss Account — usually under the heading "Other Incomes" or "Non‑operating Incomes." This keeps the operating profit (from the main business) distinct from one‑time or incidental profits.
Accounting treatment: When a gain arises, the asset or cash account is debited (increased), and the gain account is credited. For instance, on sale of a fixed asset at a profit:
- Debit: Bank Account (with the sale proceeds)
- Credit: Fixed Asset Account (with the book value)
- Credit: Gain on Sale of Asset Account (with the excess) …