Gondwana University and Other Exam News

Last updated on February 14th, 2023 at 01:29 am

The exact opposite of an expense is a receipt. Not all receipts result in a direct rise or decrease in profits or losses. Some, however, directly influence the gain or loss. However, an organization might not exist if there are no receipts.

Revenue Receipts VS Capital Receipts will be addressed in this article.

Simply said, capital receptions have no impact on the company’s ability to make a profit or lose money. For instance, the sale of long-term assets is one type of capital receipt.

But a company’s profit or loss depends on its revenue receipts. For instance, we can remark that revenue receipts include the sale of goods, the commission received, etc.

Let’s have a detailed contrasts between Capital Receipts and Revenue Receipts from the table below-

Difference between Capital Receipts and Revenue Receipts

Written records of the sums received in return for products or services are referred to as receipts. Businesses must maintain track of their financial transactions for taxation purposes as well as to monitor their expenses and profitability. Not all sales translate into a company’s profit or loss. The two basic categories of these receipts are revenue receipts and capital receipts.

The difference between revenue receipts and capital receipts is that the former may be a revenue expenditure for the subsequent year while the latter has no impact on profit or loss for the financial year.

Go through the table below, to know Revenue Receipts VS Capital Receipts in detail-

Revenue Receipts

Capital Receipts

  • It is the income earned from the company’s operational activities.
  • It is the income earned from the company’s financial activities.
  • They have a recurrent pattern
  • They have a non-recurrent pattern
  • Operational activities are the sources of revenue receipts.
  • Non-operational activities are sources of capital receipts.
  • It is basically located in the income statement.
  • It is basically located in the balance sheet.
  • Profits of an organization are regulated by its income.
  • An organization’s capital receipts have little or very little effect on its income.
  • These receipts are disclosed by businesses on their income statements.
  • On a company’s balance sheet, these are mentioned under liabilities.
  • Revenue receipts can be used by businesses to generate a surplus.
  • Capital receipts cannot be used by businesses to develop reserve surpluses.
  • These are compared to revenue received in order to calculate the year’s profit or loss.
  • These are not compared to or examined in relation to capital expenditure.
  • For e.g:- Revenue receipts are money received from the sale of products or services the company provides.
  • For e.g:- Capital receipts are income from the selling of a company’s assets.

Revenue Receipts

Revenue receipts are those that originate from a company’s or a profession’s basic business operations. Every revenue receipt must be documented on the profit and loss account’s credit side. Companies are allowed to set aside a portion of their revenue. Revenue receipts allow for the accrual of immediate benefits by businesses. Revenues will either result in greater profits or greater losses. These are frequent occurrences.

However, it is evident from the definition that every kind of receipt must meet one of two requirements in order to be referred to as a revenue receipt:

  • First, it must not deplete the company’s assets.
  • Second, it must not expose the business to any risk.

Capital Receipts

The assets are reduced by capital receipts, or a new liability is produced. They aren’t utilised to pay for reserves. Investment income statements are unaffected by capital gains. They have an impact on the balance sheets of a corporation, instead. Payments that are one-time only are recorded by them. The proprietor of the business actually makes the profits listed in these receipts.

However, it is evident from the definition that a receipt can be classified as a capital receipt if it meets at least one of the requirements listed below:

  • A liability must result from it. A liability would be created, for instance, if a business obtained a loan from a bank or other financial institution. It is a capital receipt because of this. However, as it did not result in any liability, a company would not be considered to have earned a capital receipt if it was paid a commission for leveraging its knowledge to produce a unique sort of product for another company.
  • The company’s assets must be decreased. As an illustration, if a business sells all of its shares to the public, that would help to diminish the asset and generate more cash in the future. As a result, it must be handled as a capital receipt.

Difference between Revenue Receipts and Capital Receipts: Faqs

What is the primary difference between Revenue Receipts and Capital Receipts?

Revenue receipts and capital receipts differ primarily in that capital receipts are one-time payments that either increase a company’s liability or decrease its assets. Contrarily, revenue receipts are regular payments that are recorded in the company’s income statement.

What type of income are included in the capital receipts?

Capital revenues include things like the proceeds from the sale of an asset, insurance claims, loans from financial institutions, investor investments in firms, etc.

What type of receipt is recurrent in nature?

Revenue Receipts are recurrent in nature.

What is one of the primary requirement of Capital Receipt?

The primary requirement of a receipt to be known as Capital Revenue is it should create a liability.

Are donations considered capital or revenue receipts?

A donation is a sum of money given to a nonprofit organisation. When such donations are made without any clear goal, they fall under the organization’s revenue receipt head. At the same time, any donation made with a specific goal in mind will invariably qualify as a capital receipt.

Leave a Reply

Your email address will not be published. Required fields are marked *