Section 9 of 12
The expenditure distinction (capital vs revenue) has a parallel on the income side.
Revenue income — income generated from the day-to-day trading activities of the business, received regularly in the normal course of business.
Capital income — income arising from the disposal of a non-current asset or from a long-term financing transaction; it is not part of normal trading.
| Revenue income | Capital income |
|---|---|
| Sales of goods or services | Proceeds from selling a motor vehicle |
| Rent received | Proceeds from selling machinery or land |
| Commission received | Capital introduced by the owner |
| Discount received | Proceeds from issuing shares (Ltd/plc) |
| Interest received on bank deposits | Proceeds from taking out a bank loan |
| Income type | DR | CR |
|---|---|---|
| Revenue income | Bank / Trade receivables | Sales / Rent received / Commission received |
| Capital income (asset disposal proceeds) | Bank | Disposal account |
| Capital income (owner introduces capital) | Bank | Capital |
| Error | Effect on profit | Effect on SFP |
|---|---|---|
| Capital income treated as revenue (e.g. asset sale proceeds included in sales) | Profit overstated — income incorrectly inflates trading performance | Asset not properly removed from SFP |
| Revenue income treated as capital (e.g. rent received credited to capital instead of income) | Profit understated — income bypasses the income statement | Capital section overstated |
Exam tip: Only revenue income appears in the income statement. Capital income goes through the disposal account (for asset sales) or directly to capital/liability accounts. Mixing them distorts the true trading performance of the business.
Finished this chapter? Mark it complete to earn XP.