Concept And Meaning Of Capital Profits And Revenue Profits And Their Related Items

Concept And Meaning Of Capital Profits

The amount of profit earned by the business from the sale of its assets, shares, and debentures is capital profit. If assets are sold at a price more than their book values then the excess of book value is capital profit. Similarly, if the shares and debentures are issued at a price more than their face value, then the excess of face value or premium is capital profit. Such profit is not earned in the ordinary course of the business. It is not available for the distribution to shareholders as dividend. Such profits are transferred to capital reserve. It is used for meeting capital losses. It is shown on the liabilities side of balance sheet.

Items relating to capital profits
* Profit on sale of fixed assets
* Premium on issue of share
* Premium on issue of debenture
* Share forfeited amount
* Profit on sale of investment

Concept And Meaning Of Revenue Profits

Revenue profit is the difference between revenue incomes and revenue expenses. It is earned in the ordinary course of the business. It results from the sale of goods and services at a price more than their cost price. Revenue profit is he outcome of regular transactions of the business. It is shown as gross profit and net profit in trading and profit and loss accounts. It is available for the distribution to shareholders as dividend or for creating reserve and fund for various purposes. It shows the efficiency of the business . In fact, earning revenue profit is the main objective of every business.

Related Topics
Difference Between Capital Profits And Revenue Profits
Concept And Meaning Of Capital Loss And Revenue Loss
Difference Between Capital Loss And Revenue Loss
Concept And Meaning Of Capital Reserve And Revenue Reserve
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