There are receipts are calculating in the business. First, Capital receipts are received in the form of capital, loan, or sale process of assets. Secondly, Revenue Receipts are received in the form of income.
There are many differences and similarities between Capital receipts and Revenue Receipts.
What are Capital Receipts?
The non-recurring receipt of the business is called a capital receipt.
Thus, capital receipts do not have any effect on the profit or loss of the business.
Capital Receipts Examples:
- Amount received against the sale of an asset.
- Amount contributed as capital.
- The amount received by way of loan.
- Cell process of long-term Investments.
- Legacy received in the non-profit organization.
- Additional capital is introduced by the proprietor or partners.
- The amount received by issuing shares of debenture in the case of the company.
- Recovery of loan granted by the firm.
- Government grant for the specific purpose.
- Amount received on the sale of the business.
There are also some capital payments and revenue payments.
Practical Example of Capital Receipts:
Question: Capital receipts are not directly credited to the profit and loss account. for example, when a fixed asset is sold for $22,000 and its cost is $20,000. the capital receipts of $22,000 are not credited to the profit and loss account. Profit/loss on the sale of the fixed asset is calculated and credited to the profit and loss account as follows:
Question: owners contribute to the capital of $50,000.
Answer: Because it creates an obligation on the business to repay the amount as owner. According to a separate entity, concepts of Businessmen and businesses are different. Therefore Honours’ contribution to capital is capital receipts.
Question: Entrance fee of $10,000 received by us Social Club.
What are Revenue Receipts?
The Recurring or Trading Activities Receipts of the business are called revenue receipts.
Normally, Revenue Receipts increase the profit or decrease the loss of the business.
Revenue Receipts Examples:
- The process of cash sales.
- Received from customers against goods supplied.
- Fees received against services rendered in the ordinary course of business.
- Commission received.
- Interest received.
- Dividend received.
- Sale processed of short-term Investments.
Practical Example of Revenue Receipts:
Question: subsidy received from the government $10000
Answer: it reduces the cost of production of the goods, hence it is revenue received only.
Difference between Capital Receipts and Revenue Receipts
- Normally capital receipts are shown in the balance sheet whereas revenue receipts are shown in trading and profit and loss accounts.
- Capital receipts are received other than business operations whereas revenue receipts are received from business operations.
- Thus, Capital receipts belong to non-recurring nature whereas revenue receipts are of a recurring nature.