Task 2 – Criteria covered for P2

Capital Income -

Capital income is an increase in value of capital assets employed in a business that would make it more expensive than the original price itself. For example, a woman bought a diamond that cost $3000, the next year, she decided to sell it for $4000 to a friend, the $1000 difference is called the capital income.

There is also capital loss in a business, it occurs when there is a decrease of value in the capital assets, where the selling price will be lower than the original price itself. For example, a man bought a $200 phone, the next year, he decided to sell it for $100. The $100 difference is called the capital loss.

The capital income could be a short term or long term. A short term capital income is an asset held in a business for exactly a year or less while a long term capital income is held for more than a year and they all must be claimed on income taxes. For example, I bought a limited edition car for $10000. After 5 years, average selling price of this car increases to $15000 in the market due to increasing demand. So I decided to sell it after 5 years. I am not required to pay any taxes charged on the increase of value, but I only have to pay a tax on the long term capital income.

Revenue income –

Revenue income also known as REVs is the amount of money a company receives over a period of time, you can know the revenue income by knowing the selling price and quantity sold. For example, I sold 10 handbags in a day, each of them cost $100. Total revenue income is 10 times $100, which is $1000.

Revenue is known as “top line” in accounting, because it is displayed first line on a company’s income statement. By subtracting the expenses from the revenue, you can the profit that the company makes.

There are two different ways to calculate the revenue income in a business.
There is