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).