Dissimilarities between Capital Profit and Revenue Profit
Capital profit is the profit which arises not from the normal course of the business. Profit on sale of fixed asset is an example for capital profit. Revenue profit is the profit which arises from the normal course of the business, i.e, Net Profit – the excess of revenue receipts over revenue expenditures. Following are the main dissimilarities between capital profit and revenue profit.
Capital Profit
- Meaning: Capital profit is a profit which is earned, on the sale of a fixed asset or profit earned on raising capital for a company (by issuing shares at premium). This is not a regular profit of the business and is not earned in the ordinary trade of the business.
- Mode of Earning: Capital profit is earned by selling assets, shares and debentures at a price more than their book value and face value.
- Distribution: Capital profit is not available for the distribution to shareholders as dividend.
- Use: Capital profit is transferred to capital reserve and used for meeting capital losses.
- Treatment: Capital profit is shown on the liabilities side of the balance sheet as capital reserve.
- Capital profit is money brought into the company primarily through internal measures.
Revenue Profit
- Meaning: This is a profit which is earned during the ordinary course of business e.g. profit on sale of goods, rent received, interest received etc.
- Mode of Earning: Revenue profit is earned in the ordinary course of the business.
- Distribution: Revenue profit is available for the distribution to shareholders as dividend.
- Use: Revenue profit is used to distribute dividend and create reserve and fund for various purposes.
- Treatment: Revenue profit is shown as debit balance on the debit side of the trading and profit and loss accounts and on asset side of the balance sheet as accumulated loss.
- Revenue profit is the money the business earns through its particular trade.
