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The difference between capital and revenue is very important to understand. When people think of capital, they tend to think of assets such as money or property. However, revenue refers to money received from sales of goods or services. In other words, a company’s capital is the money it has available to invest in growth, while its revenue is how much it sells its products or services for.
This article provides a broad overview of the differences between capital and revenue, with examples of how each impacts business operations.
What is capital?
Capital is the money that a business needs in order to run. It is the sum of money that an individual or company has invested to produce goods and services. This includes cash, stocks, bonds and other assets that can be converted into cash. In the case of a startup, capital will usually come from friends and family members or investors.
Any things brought for a company come under capital assets. The income or investment spends on such buying falls under capital expenditure. They are liable for depreciation and purchasing new when necessary. Thus, all physically tangled things are capital for a firm. Capital affects income and expenditure sheets in a business. However, capitals are not liable to generate high revenues always. You cannot share or combine your capital with a third party.
Examples of Capital
In the past, capital was mostly physical currency. But now it can also come in digital form such as cryptocurrency and shares. Capital may refer to tangible things such as land, buildings and machinery, intangible assets such as intellectual property or goodwill, or financial instruments such as stocks and bonds.
What is revenue?
Revenue is the amount of money that a business earns from its products or services. It is usually measured as the net profit after all expenses have been deducted. Revenue is an important metric for companies as it gives them an idea of how successful they are at making money and whether they are growing or not.
Revenue can be generated in different ways, for example, through sales, advertising, subscriptions, donations or other sources.
Revenue expenditure comes when you have to distribute with investors. It can be used in many ways as re-investment, to maintain depreciation cost, or as an owner’s profit. It is majorly shown in the profit and loss accounts. One can utilize revenues for meeting business expenditure, research, and development and keep it aside to deliver profits to the investors or partners in a business.
Difference between Capital and Revenue
Let’s explore the key differences between the capital & revenue below:
S.No. | Capital | Revenue |
1. | Capital is a resource that you use to get returns on your investment. For example, if you invest in a company, then the company's capital is what you use to make money in the future. | Revenue is the amount of money that comes from selling goods or services. For example, if your company sells products and services for $100,000 per month and it costs $50,000 per month to run the business, then the revenue would be $50,000 per month. |
2. | Assets (money, property) that are owned by a company. | Money that is received by a company from sales of goods or services. |
3. | Capital comes from investments in equity or debt securities, loans, leases, royalties on intellectual property rights and other sources of investment income. | Revenue comes from sales of goods and services, interest income, and government grants. |
4. | Capital is a liquid and tangible asset. | Revenue is a non-liquid and intangible asset. |
5. | Capital can be converted into cash or other assets, while revenue cannot. | Revenue can only be used to purchase goods or services. |
6. | Capital expenditure is incurred for long term. | Revenue is for short and long-term. |
7. | Capital is a fixed asset in a company or industry. | Revenue is a variable asset in a company or industry. |
8. | A particular wattage cannot be met with a single solar cell. | A particular wattage is possible to set by a solar panel. |
9. | Additional capitals in your company add value. | Revenue can be reinvested for asset creation. |
10. | Capital assets come in balance and income sheet. | Revenue comes in income sheet only. |
11. | Long-term benefits are occurred due to capital. | Revenues come under short-term benefits. |
12. | Depreciation cost on capitals reduce revenue. | Revenues can or cannot be put to make up the depreciation cost of capital. |
13. | Capital assets can be brought through borrowed capitals. | Borrowed capitals cannot make revenues. |
14. | Capital assets have re-sale values. | Revenues do not have any such values. |
15. | Capitals cannot be shared with investors. | Revenues can be shared with investors. |
16. | A high volume of capital does not mean big or successful business. | A high volume of revenues can come from all sizes of capitals. |
17. | Capital expenditure cannot be shared in other verticals. | Revenues can be shared with sister concerns. |
18. | Accounting heads are more in capitals. | Accounting heads are less in revenues. |
19. | Dead capitals are a form of negative assets. | Dead capitals can bring some revenues by scrapping them. |
20. | A real-time audit is possible anytime to see capital assets. | Revenues can be seen in records only. |
Bottom Line
Capital is thus a resource used to finance the acquisition of goods or services. It can be used for many purposes, such as investment and business. Revenue is what a company earns from its products or services. The difference between capital and revenue is that capital is an asset, which can be used in future, whereas revenue is what a company earns from its products or services.
Check the GAAP rules for fixed assets capitalisation.
