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written by | August 30, 2022

Capital Receipts Vs Revenue Receipts - Know the Difference

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Table of Content


Before understanding the concept of capital receipts and revenue receipts, let's start with understanding what receipts are. Receipts are a written record or recognition that a sum of money was paid in exchange for goods or services. Sellers of goods or service providers issue receipts in exchange for the customer's payment. The receipts must necessarily be supplied in business-to-consumer (B2C) and business-to-business (B2B) transactions.

Did you know?

Thermal printing is the most frequent type of physical receipt printing since it is inexpensive and simple. 

What Are Capital Receipts? 

Capital receipts are payments received by a company that are not income in nature and enhance the company's overall capital. These are funds generated by a company's non-operating operations and appear on the balance sheet rather than the income statement.

They are non-recurring, meaning they do not occur regularly and cannot be used for profit distribution. Unlike revenue receipts, which can be used to fund reserves, capital receipts are not utilised to fund reserves. They end up increasing a company's obligations or decreasing its assets. These types of receipts have no impact on an organization's total profit or loss and are recorded on an accrual basis, which means they are recorded as soon as the right of receipt is established.

Also Read: What are the Types of Accounts in Accounting?

Basic Conditions for Capital Receipts

Capital receipts must mandatorily satisfy the following conditions: 

  • Create a Liability: If your company obtains a loan from a bank or other financial institution, a liability would be created. As a result, it is a capital receipt. However, if your company received a commission for applying its knowledge to build a unique kind of product for another business, that wouldn't be considered a capital receipt because no liability was created.
  • Reduce Company Assets: The asset would be reduced if your company sold all of its shares to the public, which would lead to increased revenue in the future. You would consider it as a capital receipt in this situation.

 Types of Capital Receipts

  • Borrowings:- Borrowings involve money raised from outside sources to cover the company's expenses. Because it creates responsibility for the corporation, it is classified as a capital receipt.
  • Loan Recoveries:- Sometimes, the corporation separates a portion of an asset to collect future loans, reducing the company's assets.
  • Other Capital Receipts:- "Other capital receipts" also includes disinvestment and modest savings. Disinvestment is the act of selling off a portion of a company. It lessens your company's assets. Small savings generate liability for the company; thus, they are regarded as capital receipts.

Capital Receipts Examples

  • Cash received from the sale of fixed assets:- The Cash or Cash equivalent from fixed tangible and intangible assets.
  • Amount received from Shareholders and debenture holders
  • Borrowings include loans, disinvestment, insurance claims, etc.:- These loans create liability for the company. These loans are non-recurring in nature. 

Characteristics of Capital Receipts

  • Capital revenues are one-time events.
  • Capital receipts produce funds for non-operating activities.
  • It either increases the responsibility or decreases the asset.
  • It makes no difference to the income statement.

Also Read: What is Double Entry System of Accounting

What are Revenue Receipts? 

Revenue receipts are funds a company receives due to its primary business operations. It leads to an increase in the company's total revenue. Because a company's operating activities create these funds, they are recorded in the trade and profit and loss account rather than the balance sheet. They are recurrent and can be seen frequently and used for profit distribution. 

Basic Conditions to be Met

The following conditions must be satisfied by revenue receipts:

  • No Liability Creation: Revenue receipts do not create any liability for the government. For example, taxes received by the government, unlike borrowings, do not create liabilities.
  • No Asset Reduction: Revenue receipts do not affect the government's assets. As a result, the government cannot disclose revenue inflows from the sale of a stake in a public-sector venture because the stake sale resulted in asset reduction.

Revenue Receipts Examples

Some instances of revenue receipts in an organisation are:

  • Money received for services provided to customers
  • Rent received
  • Discounts received from suppliers, vendors, or creditors
  • Dividend received
  • Interest earned
  • Commission received
  • Bad-debts recovered
  • Revenue earned by the sale of scrap material or waste, etc.

Characteristics of Revenue Receipts

  • Benefits from revenue receipts are available for a limited time, such as one accounting or financial year.
  • Revenue receipts provide benefits for a limited time; another trait is that they are recurring in nature.
  • Revenue is generated directly from a company's operational activity.
  • It has a direct impact on a company's profit and loss. When a corporation receives income, it either increases its profit or contributes to its loss.
  • Disclosure occurs in the trading and profit or loss account rather than the balance sheet.
  • Short-term money obtained: Revenue receipts are money received for a brief time. Revenue receipts are only advantageous for one accounting year and never longer.
  • Revenue receipts must be recurrent since they provide advantages for only a brief time. The firm wouldn't be able to last very long without recurring revenue.
  • Impacts the business's profit or loss: Getting paid directly impacts the company's profit or loss. When the money is received, the profit or the loss changes.

Also Read: What is an Accounting Transaction? Example & Types of Accounting Transaction

Differences Between Capital Receipts and Revenue Receipts

Basis for Comparison 

Capital Receipts 

Revenue Receipts 

Meaning

Capital Receipts are the income generated from non-operating Activities of the business.

Revenue Receipts are the income generated from the operating activities of the business.

Nature

Non-Recurring

Recurring

Term

Long Term 

Short Term 

Show in

Position statement or Balance Sheet 

Income Statement or profit and loss Statement 

Matching Concepts 

These are not matched with the capital expenditure.

These are matched with the revenue Receipts to know the profit/ loss for the year.

Value of asset or liability 

Decrease the value of the asset or increase the value of a liability.

Increases or decreases the value of asset or liability.

Capitalised

These receipts will be capitalised.

These receipts will not be capitalised.

Distribution

These amounts are not available for distribution as profits.

Excess revenue receipts over the revenue expenses can be used for distribution as profits.

Future Obligations 

In the case of certain capital receipts, there are future obligations to return the amount along with interest. 

There are no future obligations to return the amount. 

Examples

Loan by the government 

Tax receipts 

Conclusion:

Capital receipts can lower financial assets or produce liabilities. Both non-debt and debt receipts may be included in this list. Capital receipts include money obtained through the sale of fixed assets, the sum borrowed from a bank, and capital contributed to the company by a new partner. Revenue receipts are funds a company receives due to its primary business operations.

You will be able to manage your daily operations much more successfully if you comprehend these two principles, when they occur, and how they affect your organisation. Your capital receipts will reflect this, for instance, if your company is expanding quickly and has to borrow money through a bank loan or an initial public offering (IPO). If the frequency and volume of your revenue receipts are low, you will know to consider borrowing money instead and, where practical, reducing costs.

Understanding the ideas of capital & revenue receipts, aids investors in making wise decisions regarding whether or not to invest in a firm. You should think hard before investing if a company has more capital receipts than income. Additionally, you can accept the risk if the company has more revenue receipts and fewer capital receptions (occurrence, not volume), as this indicates that it has moved past the point of survival.
Follow Khatabook for the latest updates, new blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and account. 

FAQs

Q: What are receipts?

Ans:

Receipts are a written record or recognition that signifies a sum of money paid in exchange for goods or services.

Q: What are the key differences between capital receipts and revenue receipts?

Ans:

The key differences between capital receipts and revenue receipts are as follows:- 

  • Capital receipts are generated by investing and financing operations, whereas operating activities generate revenue receipts.
  • Capital Receipts are uncommon since they are non-recurring and irregular. However, revenue receipts occur repeatedly, i.e., they are recurring and consistent.
  • The benefit of capital reception can be realised over multiple years. However, the benefit of revenue receipt can only be realised in the present year.

Q: What are the main features of revenue receipts?

Ans:

The main features of revenue receipts include means for survival and short-term application.

Q: What are the examples of revenue receipts?

Ans:

The examples of revenue receipts in an organization are money received for services provided to customers, discounts given by suppliers, vendors, or creditors, received a dividend, recovery of debts, and much more,

Q: What are Capital receipts and Revenue receipts?

Ans:

Capital receipts are those that create liability or reduce an asset, while revenue receipts neither reduce nor generate liability for the company.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.