Capital Receipts and Revenue Receipts

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Definition of Receipts and its Types:

Receipts are the amounts actually received in cash. The receipts may be categorized as:

(1) Capital Receipts and (2) Revenue Receipts

Capital Receipts – Definition, Explanation and Examples:

Capital receipts are the amounts received on account of new capital (owner’s capital or loan capital) or through sale of non-current assets (capital expenditure); or they represent a reduction in the earning capacity or sale-able value of a non-current asset; or a rebate in respect of capital expenditure or loss; or a return of the purchase price (wholly or in part) of a non-current asset or of a business is a capital receipt.

Increase in the value of a non-current asset is considered capital income but accountancy practice declines to recognize a mere estimate of an appreciation in the value of a non-current asset as profit. If the asset be written up, then this revaluation profit should be transferred to owner’s capital in case of sole proprietorship and partnership or revaluation reserves (capital reserve) in case of a company.

For example, amount obtained from issuance of shares, debentures or bonds, cash from sale of fixed assets, loans, insurance claims, additional capital introduced by the proprietor, etc.

Revenue Receipts – Definition, Explanation and Examples:

Revenue receipts are the amounts received from sale of goods, or through providing services of business assets to other persons or businesses.

Revenue receipts are daily money transactions in a business activity so it determine, profit or loss position of a business. Few common examples are receipts from sale of goods and services, discount received from creditors or suppliers, interests earned, dividends received, rent received, commission received, bad-debts recovered, income from other sources, etc.

Difference/Distinction between Capital and Revenue Receipts:

There is difference/distinction between capital and revenue receipts, which is given below:

capital and revenue receipts difference