Capital receipt and revenue receipt, both are the very important components of accounting. It is important to correctly differentiate between the two. Classification of these transactions reflects in the final statements of the company. Let us learn more about them.
These have a nature of non-recurrence, besides that, they are situated in the balance sheet in the liabilities portion of them. The capital receipt is always in the interchange for the 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.
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The following sources are the generators of the capital receipt:
- Additional capital and mentioned assets introduced by the owner or the possessor
- Debentures and the other issues of debt instruments
- Loans borrowed from a bank or from a financial institution.
- Various insurance Claims.
- 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.
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:
- The sale of any kind of an inventory
- Income from services rendered
- Different types of discount Received from the suppliers
- Sale of scrap
- Interest received.
- Rent received
To sum it all, 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.
Solved Questions for You
Q: What are capital receipts?
Ans. Capital receipts do not have a nature of recurrence and do not occur again and again but once in the accounting year and also, they are mentioned on the balance sheet in the liability corner. The non-operating sources generating the income are capital receipts, and they have a long-term effect.
Q: What are the revenue receipts?
Ans. Revenue receipts are just like a part of normal and common business operations that is why they occur again and again contrary to the capital receipts but have the short-term benefits.