What does the term 'capital gain' refer to?

The term 'capital gain' refers specifically to the increase in value of an asset from its original purchase price. This concept is essential in financial accounting and investment contexts, as it underscores how the appreciation of assets, such as stocks, real estate, or other investments, can result in profit when the asset is sold for more than its initial cost.

Understanding capital gains is critical for investors and accountants alike, as it impacts tax liabilities and investment strategies. When an asset is sold for a price higher than what was paid, the difference is classified as a capital gain, which can be realized upon the sale of the asset. In many jurisdictions, capital gains can be subject to specific tax rates, making knowledge of this term important for financial planning.

The other options refer to different financial concepts that do not align with the definition of capital gain. For instance, total expenses deducted from revenue pertain to profit calculation, initial outflow in an investment refers to cash flow rather than gain realization, and cash generated from operating activities relates to a company's operations instead of asset appreciation. This differentiation highlights why the increase in value of an asset is the correct interpretation of capital gains.