The loss that is still not actual, i.e., not incurred in reality. Such a loss will not materialize unless the corresponding transaction is completed. Therefore, paper loss is said to be recorded on paper, so far, as the relevant transactions that would result in loss have not been completed.

Differently put, this loss reflects negative changes in the value (fair value) of assets and liabilities that have not been recognized due to incompletion of transactions involving these items (e.g., financial securities, properties, etc.) For example, an entity invests in financial securities issued by other entities, and it happens that these securities decrease in value, say by 10% over a specific period. On paper, or theoretically, the entity will incur a loss on these holdings, but currently cannot record the loss in value on the statement of income (P&L) as these securities are still held by the entity and have not been disposed of.

Paper losses are usually recorded in an account known as accumulated other comprehensive income (AOCI), which appears under owners’ equity in the statement of financial position.

It is also known as an unrealized loss.