Introduction
A business receives money from various sources. It is important to be able to classify them into Capital and Revenue Receipts as it impacts the financial statements.
What are Revenue Receipts?
Revenue Receipts are the receipts in the normal course of business. These receipts occur repeatedly, and they affect the Profit & Loss Account.
Characteristics of Revenue Receipts:
- Normal Business Operations
- Recurring Nature
- Direct Impact on Profitability
Examples of Revenue Receipts:
- Sales Revenue
- Service Fees
- Interest Income
- Rental Income
What are Capital Receipts?
Capital Receipts, on the other hand, are receipts that are not normally generated from the daily operations of the business. This has a direct effect on the overall financial position of the business.
Characteristics of Capital Receipts:
- Not Normal Business Operation
- Non-Recurring Nature
- Impact on Assets/Liabilities
Examples of Capital Receipts:
- Proceeds from the Sale of Fixed Assets
- Loans and Borrowings
- Capital Contributions
The Core Differences
| Factor | Revenue Receipts | Capital Receipts |
| Nature | Normal business operation | Not normal business operations |
| Recurring | Recurring Nature | Non Recurring Nature |
| Effect on Assets/Liabilities | No effect on assets/liabilities | Effect the assets and liabilties |
| Presentation in Financial Statement | Profit & Loss Account | Balance Sheet |
Conclusion
As CA Foundation students, understanding the distinction between capital and revenue receipts is essential for you to become great accountants. If you have a great understanding, that means you will always have good financial reportings and transparent accounts!