Gain (finance)
Encyclopedia
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 cost
s 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 b
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
, gain is a profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
or an increase in value of an investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
such as a stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
or bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
. Gain is calculated by fair market value
Fair market value
Fair market value is an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market. An estimate of fair market value may be founded either on precedent or...
or the proceeds from the sale of the investment minus the sum of the purchase price and all cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
s 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
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered 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
International Financial Reporting Standards
International Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
), 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 b
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- List of accounting topics
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