Capital and Revenue Receipts: Capital receipts comprise of payments or contributions into the business by the proprietor, partners or companies towards the capital of the firm and also any sum received from debenture-holders, any loans and the proceeds of sale of any fixed assets of a business enterprise.
- Capital Receipts – Govt receipts which either create liability or reduce assets are called capital receipts. Liabilities means govt is borrowing from other sources and reducing assets means the govt is disinvesting to raise the funds. One example of capital receipts are recovery of loan by the government.
- Revenue Receipts – Govt receipts which neither create liability nor reduce assets are called as revenue receipts. Tax proceeds, cess, interest on govt investment and dividend and other different services that are provided by the govt consittute the revenue receipts.
Capital Receipts and Revenue Receipts
Just as a clear distinction between Capital and Revenue expenditure is necessary, in the same manner capital receipts must be distinguished from revenue receipts
Receipts which are obtained in course of normal business activities are revenue receipts (e.g. receipts from sale of goods or services, interest income etc.). On the other hand, receipts which are not revenue in nature are capital receipts (e.g. receipts from sale of fixed assets or investments, secured or unsecured loans, owners’ contributions etc.). Revenue and capital receipts are recognised on accrual basis as soon as the right of receipt is established. Revenue receipts should not be equated with the actual cash receipts. Revenue receipts are credited to the Prof t and Loss Account.
Revenue receipts are the outcome of a firm’s activity in the accounting period, part of its rewards for offering goods or services to the public e.g. sales, commission, fees received for services, interest on investment, etc. Revenue receipts must be set off against the revenue expenses in order to calculate the profit or loss of the business in an accounting period. Capital receipts and expenditure have no bearing on the profit or loss for the accounting period. The distinction between capital receipts and revenue receipts can be drawn as follows:
Difference between Capital Receipts and Revenue Receipts
|BASIS||CAPITAL RECEIPT||REVENUE RECEIPT|
|Meaning||Capital Receipts are the income generated from investment and financing activities of the business.||Revenue Receipts are the income generated from the operating activities of the business.|
|Term||Long Term||Short Term|
|Shown in||Balance Sheet||Income Statement|
|Received in exchange of||Source of income||Income|
|Value of asset or liability||Decreases the value of asset or increases the value of liability.||Increases or decreases the value of asset or liability.|