CAPITAL AND REVENUE NOTES

CAPITAL AND REVENUE NOTES covers the topic of Difference between Capital and revenue expenditure and Difference between Capital and Revenue receipts.

QUESTION: “Capital receipt is different from revenue receipts.” – Explain.

CAPITAL RECEIPT

Capital receipt is the amount received by the enterprise which is not revenue in nature and leads to an overall increase in the total capital of the company. Capital receipts generate out of the non-operating activities. It means these receipts do not arise out of the normal course of business.

Example: Sale of land for ₹10,00,000. The sale of land generate the revenue of ₹10,00,000 which is a capital receipt as it has lead to the decrease in the asset.  

EXAMPLES

• Amount received from sale of fixed assets or investments.
• Capital contributed by the proprietors, partners or money obtained from issue of shares and debentures in case of company.
• Amount received by way of loans.

REVENUE RECIEPT

Revenue receipt is the amount received by the business as a result of its core business activity. It leads to increase in the overall revenue of the business. These receipts refers to the sale proceeds of merchandise or fees received for services rendered, discount received, commission received, interest received, discount received on shares.

Receipt of money in the revenue nature increases the profits or decreases the losses of a business and must be set off against the revenue expenses in order to find out the profit or loss for the period.

EXAMPLES

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

• The sale of any kind of inventory
• Income from services rendered
• Different types of discount received from the suppliers
• Sale of scrap
• Interest received, etc

DIFFERENCE BETWEEN CAPITAL AND REVENUE RECEIPT

BASIS OF DIFFERENCE	CAPITAL RECEIPT	REVENUE RECEIPT
MEANING	Capital receipt is the income generated from investment and financing activities of the business.	Revenue receipts are the income generated from the operating activities of the business.
NATURE	Capital receipts are non-recurring in nature.	Revenue receipts are reccuring in nature.
AMOUNT	Large amount of funds are involved.	Revenue receipt is generally of small amount in comparison to capital receipt.
SHOWN IN	The capital receipt is shown in the Balance Sheet or Position Statement.	The revenue receipt is recorded at the credit side of Trading or Profit and Loss Account.
RECEIVED IN EXCHANGE OF	The capital receipt is received in exchange of source of income. Example: Sale of plant and machinery results in capital receipt.	This is an income.
VALUE OF ASSET OR LIABILITY	Capital Receipt results out the increase in liability or decrease in the asset.	It does not arises out the increase or decrease in asset or liability.
USE FOR DISTRIBUTION AS PROFITS	These are the receipts which are non-recurring in the nature. That is why the amount received against these receipts are not available for distribution as profits.	These are the receipts which are recurring in the nature. That is why the amount received against these receipts is available for distribution as profits.
CREATION OF RESERVE FUND	These receipts are not used to create reserve funds.	These receipts are used to create reserve funds.
MATCHING	The capital receipts are not matched against the capital expenditure.	The revenue receipts are matched against the revenue expenditure to find out the profit or loss of the firm.

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