In every business firm there are two types of profits a business earns, first is capital profits on all capital investments and second is revenue profits which earn on all business operations.
There are many types of differences between capital and revenue profits.
The following is the explanation of capital profits and revenue Profits with examples:
What are Capital Profits?
Profit raised from non-recurring transactions is called capital profit.
Capital profit should be transferred to the capital reserve account.
Which appears on the liabilities side of the balance sheet.
Capital Profit Examples:
- Profit earned on the sale of fixed assets(excess of selling price over the cost price).
- The premium on the issue of securities.
- Profit from the absorption of another firm.
- Discount on the redemption of securities.
- Profits prior to incorporation.
- Profit remaining on Re-issue of forfeited shares.
Capital expenditure and revenue expenditure are also affecting profits. But there are also differences between revenue income and capital income.
What are Revenue Profits?
Profit earned in the ordinary course of business is called revenue profit.
Revenue Profit Examples:
- Discount received.
- Profit from the sale of goods.
- Commission received.
- Interest received.
- Profit on the sale of fixed assets (excess of cost overwritten down value).
- Profit on a sublet.
Thus, these are the key differences you can find between capital and revenue profits.