User:Mladek/sandbox

In financial accounting, losses   usually result from changes in the value of assets (decreases) or liabilities (increases). Losses may also result from transactions outside a company's normal earnings process. In practice four circumstances lead to losses: nonreciprocal events, nonreciprocal transactions, exchange transactions and holding losses.
 * 1) "Nonreciprocal events"  are fairly common: catastrophes, impairments, accidents, theft or accidental damage to the environment.
 * 2) "Nonreciprocal transactions"   can be either gains or revenue depending on the circumstances. For example, a charitable contribution received by a not-for-profit would be revenue even though the transaction is nonreciprocal. In contrast, a government grant received by a for-profit company would a gain because it is nonreciprocal. Consequently, the accounting for nonreciprocal gain transactions is generally outlined at the IFRS/IAS or ASC level.
 * 3) "Exchange transactions" are incidental to the entity's operations.  For example, if an entity sells a machine manufactured for sale, it would recognize revenue and cost of sales. If, on the other hand, an entity sells a machine previously used in production, it would recognize loss if it receives less for the machine than its depreciated value.
 * 4) "Holding losses" result from decreases in value of assets or increases in liabilities during a period. For example, if an industrial company bought shares of another company 1000 and, at the end of year one, the market value of the shares was 800, it would recognize an holding loss of 200.  Whether holding losses are realized or unrealized affect income depends on how realized or unrealized is defined in the accounting standards applied (for example IFRS and US GAAP treat unrealized gains and losses differently than tax accounting).

Category:Financial accounting Category:United States Generally Accepted Accounting Principles