Capital Receipt and Revenue Receipt: With Examples (Explain)

There are many differences and similarities between Capital Receipt and Revenue Receipt.

Capital Receipt

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 includes:

Amount received against the sale of an asset.
Amount contributed as capital. (Capital Receipt and Revenue Receipt Explanation Examples Differences)
The amount received by way of loan.
Cell process of long-term Investments.
Legacy received in the non-profit organization.
Additional capital 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.

Example 1.

Question: Capital receipts are not directly credited to profit and loss account. for example, when a fixed asset is sold for $22,000 and its cost is $20,000. the capital receipts $22,000 is not credited to profit and loss account. Profit/loss on the sale of the fixed asset is calculated and credited to profit and loss account as follows:

Sale Proceeds	$22000
Cost	($20000)
Profit	$2000

Example 2.

Question: owners contribute to the capital of $50,000

Answer: because it creates an obligation on business to repay the amount as owner. according to a separate entity, concept Businessmen and businesses are different. Therefore Honours’ contribution to capital is capital receipts.

Example 3.

Question: Entrance fee of $10,000 received by us Social Club.

Answer: Because it is the non-recurring receipt for the non-profit organization and is added to the capital fund. If the amount is insufficient, it can be treated as revenue income.

Capital Profits And Revenue Profits.

Revenue Receipt

The Recurring or Trading Activities Receipts of the business is called revenue receipts.

Normally, Revenue Receipts increase the profit or decrease the loss of the business.

Revenue Receipts includes:

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.

Thus, the 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 received other than business operations whereas revenue receipts are received from business operations.
Thus, the capital receipts are received in the form of capital, loan or sale processed of assets whereas Revenue Receipts are received in the form of income.
Thus, Capital receipts belonging to non-recurring nature where is revenue receipts are of a recurring nature.