Capital receipts and revenue receipts

Capital Receipt and Revenue Receipt

In many situations it is found difficult to differentiate between capital and revenue receipts, but clear class bifurcation is very important.

Capital Receipt

These are the receipts which are usually found place in the balance sheet of a firm, which is of non recurring nature. Usually capital receipts are understood as income. The capital receipt is a kind of cash-flow in the business that does not occur over and over again and this eventually, leads to the creation of liabilities in the future and also, the decrement of assets takes place in the future.

All of the capital receipts are free from taxation unless there is a provision to tax it. Various types of Gifts and loans are the types of the capital receipts that do not attract tax and are tax-free. So, in addition to non-recurring, Capital receipts are those non-routine receipts which either becomes a load and responsibility or cause a vivid depletion in the assets of the government or any organization and business.

The following sources are the generators of the capital receipt:

1. Additional capital and mentioned assets introduced by the owner or the possessor

2. Debentures and the other issues of debt instruments

3. Loans borrowed from a bank or from a financial institution.

4. Various insurance Claims.

5. Issue of Shares

So, basically, capital receipts are those that are the derivation of the not so normal operations of a business. Besides that, the effect of capital receipt is depicted in the balance sheet. These receipts are not at all a part of normal operations of government business. For example, a sale of fixed assets, etc.

Revenue Receipt

These receipts are a major source of income for any kind of a business and without it, a business can’t survive for long. This is a result of the normal and core business activities. Being a normal business result is the reason for its recurring nature. However, there is a little shortcoming associated with it. The benefits of revenue receipts are enjoyable only for the current accounting year and not possibly after that.

The income received from the daily and periodic activities of business includes all the operations that indulge cash into the business like:

1. The sale of any kind of an inventory

2. Income from services rendered

3. Different types of discount Received from the suppliers

4. Sale of scrap

5. Interest received.

6. Rent received

To conclude, Revenue receipts are recurring receipts and their effect is shown on the income statement. For a successful business, both receipts play a prominent role as they both compliments each other.