Gain (finance)

Gain (finance)

In finance, gain is a profit or an increase in value of an investment such as a stock or bond. Gain is calculated by fair market value or the proceeds from the sale of the investment minus the sum of the purchase price and all costs associated with it. If the investment is not converted into cash or another asset, the gain is then called an unrealized gain.

In accounting, a gain is a change in the value of an asset (increase) or liability (decrease) resulting from something other than the earnings process. While gains are often associated with investments, derivatives and other financial instruments, they can also result from something as simple as selling a production asset (such as a machine) for more than its net book (accounting) value.

As such, gains are similar to, but nonetheless significantly different from, revenues. The difference lies in the existence of intent to earn a profit. Thus, revenues result from the intentional producing and delivering of goods and/or rendering services, while gains can result from incidental occurrences and often-random events (such as the change in a stock’s market price, a gift or a chance discovery).

Finally, the term “realized” also has a slightly different meaning when used in the accounting context (the accounting context; that income/revenue should only be counted when realized, if unrealized the item should be counted as an asset [income receivable] on the Balance Sheet). Under US GAAP (US Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards), a gain is “realized” when the market value of some asset or liability (such as a financial instrument) changes, even if the reporting entity continues to hold that asset or liability. This “revaluation” concept is also the basis for “fair value accounting” (which was originally designed to capture the value of derivatives and other financial instruments).

ee also

*Workplace
*The Protestant Ethic and the Spirit of Capitalism
*List of accounting topics
*Prospect theory


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