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Capital and Revenue Receipts:

When the business receives money it is again of two sorts. It my be a long-term receipt, a contribution by the owner, either to start the business off or to increase the funds available to it. It might be a mortgage or an which brings money into the business for a long-term, but in this case it is not the owner of the business but some other investor who is supplying the money.

On the other hand, the receipt may be a short-term receipt, one which is truly a profit of the business. It may be rent received, commission received or cash for sale of goods made that day, or at some previous time.

Capital Receipt:

Receipts which are non-recurring (not received again and again) by nature and whose benefit is enjoyed over a long period are called "Capital Receipts", e.g. money brought into the business by the owner (capital invested), loan from bank, sale proceeds of fixed assets etc. Capital receipt is shown on the liabilities side of the Balance Sheet.

Revenue Receipt:

Receipts which are recurring (received again and again) by nature and which are available for meeting all day to day expenses (revenue expenditure) of a business concern are known as "Revenue receipts", e.g. sale proceeds of goods, interest received, commission received, rent received, dividend received etc.

Distinction between Capital Receipt and Revenue Receipt:

Revenue Receipt

Capital Receipt

1. It has short-term effect. The benefit is enjoyed within one accounting period. 1.

It has long-term effect. The benefit is enjoyed for many years in future.

2. It occurs repeatedly. It is recurring and regular. 2. It does not occur again and again. It is nonrecurring and irregular.
3. It is shown in profit and loss account on the credit side.

 

3. It is shown in the Balance Sheet on the liability side.
4. It does not produce capital receipt. 4. Capital receipt, when invested, produces revenue receipt e.g. when capital is invested by the owner, business gets revenue receipt (i.e. sale proceeds of goods etc.).
5. This does not increase or decrease the value of asset or liability.

 

5. The capital receipt decreases the value of asset or increases the value of liability e.g. sale of a fixed asset, loan from bank etc.
6. Sometimes, expenses of capital nature are to be incurred for revenue receipt, e.g. purchase of shares of a company is capital expenditure but dividend received on shares is a revenue receipt. 6. Sometimes expenses of revenue nature are to be incurred for such receipt e.g. on obtaining loan (a capital receipt) interest is paid until its repayment.

Relevant Articles:

Capital Expenditures

Revenue Expenditures
Difference between Capital Expenditure and Revenue Expenditure
When Revenue Expenditures are not regarded as Revenue Expenditures?
Principles for making distinction between Capital and Revenue Expenditure
Capital and Revenue Receipts
Capital and Revenue Profits and Losses
Capital and Revenue Payments

 

 

 

 

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Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 
 

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