Gain definition
/What is a Gain?
A gain is derived from an increase in the value of an asset. It is considered to be realized if the asset is sold to a third party, resulting in a profit. A gain is considered to be unrealized if the asset has not yet been sold.
Gains are typically realized through secondary or non-operating activities and are recorded on the income statement as part of a company’s total income. Gains contribute to profitability but are distinguished from revenue, which arises from the primary operations of the business.
Characteristics of a Gain
The key characteristics of a gain are as follows:
Non-operating in nature. Gains arise from activities that are not part of the company’s primary business operations.
Increases income. Gains add to the company’s net income, improving profitability for the reporting period.
Different from revenue. Revenue comes from the company’s core business activities (e.g., selling goods or services), while gains are typically from ancillary activities.
Reported separately. Gains are usually listed as “other income” or in a separate line item on the income statement to differentiate them from revenue.
How to Calculate a Gain
The amount of a gain is computed by subtracting its book value from the payment received from its sale, less any commissions and processing fees. For example, if a company sells equipment that has a carrying amount of $20,000 to a buyer for $22,000, and pays a $500 commission to do so, then its recorded gain will be $21,500 (calculated as the $22,000 sale price, minus the $20,000 carrying amount, minus the $500 commission).