The points of difference between Capital and Revenue income are given below.
Capital incomes are those incomes that do not arise in the normal course of business operations. Such incomes arise from the capital itself, without involving any production work. For example, premium received from the issue of shares or debentures.
Revenue incomes are those incomes that are earned in the conduct of ordinary and day to day business activities. Such incomes are earned frequently. For example, profit earned from the sale of goods, commission earned etc.
Difference between Capital Income and Revenue Income
|Capital Income||Revenue Income|
|Meaning||Incomes arising from the capital itself, without involving any production work||Incomes earned in conduct of ordinary and day to day business activities|
|Activities||These are not earned from the ordinary business activities.||These are earned from the ordinary business activities.|
|Nature||It is non-recurring in nature.||It is recurring in nature.|
|Shown||It is shown on the Liabilities Side of Balance Sheet.||It is shown on the Credit Side of Profit and Loss Account.|
The capital expenditure results in an income or benefits for a longer period that extends for a period of more than a year. This expenditure is shown in the Balance Sheet
A promissory note is an unconditional promise in writing given by the buyer (or creditor) to the seller (or debtor) to pay the amount of money specified therein to the seller or to the order of seller or to bearer.
The reserves that are created out of the capital profits of a business are known as Capital reserves. Capital profits are the profits that are not earned in normal business activities.
Secret reserves are those reserves that exist in the business to strengthen its financial position but are not disclosed in the Balance Sheet.