I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

maintain the building and thus the 'earning capacity' of the building. 

2.3 Capital income and revenue income 

Capital income is the proceeds from the sale of non-trading assets (ie proceeds from the sale of non-

current assets, including long-term investments). The profits (or losses) from the sale of non-current 

assets are included in the statement of profit or loss of a business, for the accounting period in which 

the sale takes place. For instance, the business may sell vehicles or machinery which it no longer needs 

– the proceeds will be capital income. 

Revenue income is income derived from the following sources. 

(a) 

The sale of trading assets, such as goods held in inventory  

(b) 

The provision of services 

(c) 

Interest and dividends received from investments held by the business 

2.4 Capital transactions 

The categorisation of capital and revenue items given above does not mention raising additional capital 

from the owner(s) of the business, or raising and repaying loans.  

(a) 

These transactions add to the cash assets of the business, thereby creating a corresponding 

liability (capital or loan). 

(b) 

When a loan is repaid, it reduces the liabilities (loan) and the assets (cash). 

None of these transactions would be reported through the statement of profit or loss. 

2.5 Why is the distinction between capital and revenue items important?