Net Loss vs. Gross Loss

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If you are running a business, it is not uncommon to sustain a loss of revenue in your first few years of operation. Losses are tracked through income statements generated by your accounting department. The two types of loss that could affect your business are net loss and gross loss. Understanding the types of financial loss and where you are sinking money into your business could help you turn things around and make a profit in the future.

Gross

The gross loss for a company reflects how much the business spends in any given period without factoring in revenue. A gross loss is the amount of money your business has paid for expenses such as equipment purchases, payroll, duty fees and leasing charges to keep your company in operation. The gross loss will not reflect any credits to the account. The gross loss will be greater than the net loss for your company, since gross represents the whole sum while net represents part of the whole.

Net

A net loss occurs when your business expenses exceed your total income for your business. To determine a net loss and compare it to your gross loss, you need two figures. First, you need to know the amount of sales for your company. Subtract all fixed expenses, such as utility payments, payroll, product depreciation, lease payments and taxes, from the gross profit and sales figures. If your expenses exceed your revenue for the particular time frame, you have a net loss.

Significance

Net losses could affect how your business files taxes. If your expenses exceed the income for your business, you could receive a refund of taxes paid by your business in previous years. Under the American Recovery and Reinvestment Act of 2009, businesses are able to offset a net operating loss against income earned over the past five years. The purpose of this law is to help struggling small businesses receive a quick influx of cash through a tax refund.

Potential

Once your company succeeds, income reports will reflect gross profit and net profit. The gross profit is the total amount of sales made by your company at any given period of time. The net profit reflects how much your company earned after all expenses have been factored in, such as overhead costs, taxes, insurance premiums, salaries and rental fees.