Accountancy · Ch 1 — Introduction to Accounting
Loss
Loss
Loss is the financial result when the expenses of a period exceed the revenues earned in that same period. In other words, if a business spends ₹1,20,000 to earn ₹1,00,000, the shortfall of ₹20,000 is a loss. This directly reduces the owner’s equity — the owner’s claim on the business shrinks because the business has consumed more value than it generated.
But the term “loss” has a second, equally important meaning in accounting. It also refers to any money or money’s worth that is lost — or any cost incurred — without receiving any benefit in return. This covers events like cash stolen from the office, goods destroyed by fire, or stock damaged in a flood. In each case, the business has given up value (cash or goods) and gets nothing useful back. A loss on the sale of a fixed asset — selling a machine for less than its book value — also falls under this head.
A loss is not an expense. An expense is incurred to earn revenue (e.g., rent paid to run the business). A loss is a sacrifice from which no revenue benefit flows.
Accounting treatment: When a loss occurs — say goods worth ₹5,000 are lost by theft — the journal entry is:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Loss by Theft A/c ………. Dr. | 5,000 | |||
| To Purchases A/c (or Goods A/c) | 5,000 | |||
| (Being goods lost by theft) |