In general, two types of receipts occur during the course of business. Capital Receipts are described as the money brought to the business from non-operating sources like proceeds from the sale of long-term assets, capital brought by the proprietor, sum received as a loan or from debenture holders etc. In contrast revenue receipts are the result of firm’s routine activities during the financial year, which includes sales, commission, interest on investment.
Capital receipts differ from revenue receipts, in the sense that the former has no bearing on profit or loss for the financial year, whereas the latter is set off against the revenue expenses for the period. Read the article provided to you, so as to understand the difference between capital receipt and revenue receipt.
Content: Capital Receipt Vs Revenue Receipt
|Basis for Comparison||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.|
Definition of Capital Receipt
Capital receipts are the income received by the company which is non-recurring in nature. They are part of the financing and investing activities rather than operating activities. The capital receipts either reduces an asset or increases a liability. The receipts can be generated from the following sources:
- Issue of Shares
- The issue of debt instruments such as debentures.
- Loan taken from a bank or financial institution.
- Government grants.
- Insurance Claim.
- Additional capital introduced by the proprietor.
Definition of Revenue Receipt
Revenue Receipts are the receipts which arise through the core business activities. These receipts are a part of normal business operations that is why they occur again and again however its benefit can be enjoyed only in the current accounting year as its effect is short term. The income received from the day to day activities of business includes all the operations that bring cash into the business like:
- Revenue generated from the sale of inventory
- Services Rendered
- Discount Received from the creditors or suppliers
- Sale of waste material/scrap.
- Interest Received
- Receipt in the form of dividend
- Rent Received
Key Differences Between Capital Receipt and Revenue Receipt
The following points explain the difference between capital receipt and revenue receipt in detail:
- Receipts generated from investing and financing activities are capital receipts, on the other hand, receipts from operating activities are revenue receipt.
- Capital Receipts do not frequently occur, as it is non-recurring and irregular. But, revenue receipts occur again and again, i.e. they are recurring and regular.
- The benefit of capital receipt can be enjoyed in more than one year, but the benefit of revenue receipt can be enjoyed only in the current year.
- Capital Receipts appears on the liabilities side of the Balance Sheet whereas Revenue Receipts appears on the credit side of the Profit and Loss Account as income for the financial year.
- The capital receipt is received in exchange for the source of income. Unlike revenue received which is a substitution of income.
- Capital receipt either decreases the value of an asset or increases the value of liability, but revenue receipt neither increases nor decreases the value of asset or liability.
- Both receipts are a part of business activities.
- Both are necessary for the survival and growth of the company.
- The source of business income.
In general, Capital Receipts and Revenue Receipts play a vital role in the growth of business, as the business may not be able to survive, in the absence of the two.