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
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Capital Receipt
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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:
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