Capital and revenue profits
Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021
Profit made by the business are of two types:-
- Capital profits
- Revenue profits
Profits earned on the sale of fixed asset is capital profits. For instance, if a surplus machine costing $3,000 is sold for $4,000 the business earns a profit of $1,000. It is a capital profit. Capital profits appear as liability in the balance sheet.
Revenues profit is a profit made by trading, for instance, merchandise costing $6,000 is sold for $9,000, the profit of $3,000 is a revenue profit.
Revenue profits are transferred to income statement of the year in which they occur because they arise out of regular and nominal business activities.