Negative line items under Revenue/Gains in a P&L / Income statement

Question

I'm new to managing a P&L and currently have a document like this...

Revenue/Gains/Top-Line
--Sales on Product 1: 10,000
--Sales on Product 2: 20,000
--Returns on Investment 1: 10,000
--Returns on Investment 2: -5,000
--Total Revenue: 35,000

Expenses/Losses
--Headcount costs: 50,000
--Investment 2: 15,000
--Total Expense: 65,000

Net Income/Bottom-Line
--30,000 loss

The thing I'm unsure about is how to treat "Investment 2". It's a loss in the sense that the investment lost 5,000 value over the accounting period, and also a loss in the sense that I invested 15,000 into it.

I don't want to simply categorise it as a 20,000 combined loss in the "Expenses/Losses" section because they're fundamentally different.

Am I potentially confusing the meaning of Revenue/Gains by including negative values in there? Should I just have 2 line items in Expenses/Losses? The problem with that in my mind is that for each investment I'd need a line item in both Revenue/Gains and Expenses/Losses since month-by-month I may earn or lose money.

Answer 1

Am I potentially confusing the meaning of Revenue/Gains by including negative values in there?

No, it's common to have negative values in some accounts that normally have positive values. In this case, I'd expect there to be a line in the financial statement under the revenue section titled something like "Gains/(losses) on investments". If there was a net loss in that period, it would be shown as a negative (either with a negative sign or in parentheses).

The alternative, to jump accounts between sections depending on whether the net amount is positive or negative, would be confusing for analysts that are trying to see how your financial situation changes over time. It would also overstate total "revenue" if some investments are used as hedges to reduce risk - you'd expect hedges to offset revenue or losses in order to reduce variability.

As a side note, you can still summarize the section by just adding up all of the values - since some are negative they have the effect of reducing overall "revenue".

Answer 2

Your mistake is hidden in the sentence "and also a loss in the sense that I invested 15,000 into it." When you buy something, there is no immediate impact on your P&L, because you simply exchange cash for another asset. So the purchase of your investment is not a loss, nor a gain. The 5,000 value reduction over the period on the other hand is a loss that goes into P&L. As a result, your net income is only -15,000.