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Revenue receipts, like revenue expenditures
affect the P & L A/c and are shown on its credit side.
Capital receipts, like capital expenditures do not affect
profit, and are either shown as a liability or more often
as a reduction from the assets. Any excess realisation over
the book value of an asset may, however, be treated as a revenue
receipt and accounted for as such. It is, therefore, essential
to know the distinction.
Examples of Capital Receipts:
- Capital invested by the owners of the business.
- Amount received from sales of fixed assets or investments.
- Conversion into Cash of any Asset except stock.
- Loans received.
Examples of Revenue Receipts:
- Amount from sale of goods.
- Amount received from rendering services to other parties
or interest received or commission received
It is very difficult to make a clear-cut
distinction between capital receipts and revenue receipts.
The distinction is important both for income determination
and taxation purposes. An important feature of revenue receipts
has been that the amount received does not need to be returned
to anyone.
Capital Loss and Revenue Loss. Capital loss
is that loss which occurs due to sale of some fixed asset.
For examples, loss due to issue of shares or debentures at
a discount, loss due to misappropriation of Cash from the
office or forfeiture of security deposited for getting an
agency. Revenue losses are those losses, which occur due to
sale and purchase of goods. For example, Bad Debts, loss due
to fall in the price of goods, etc.
Whereas revenue loss is usually accounted
for in the current year's P & L A/c, capital loss is usually
spread over a few years.
Q. Explain the difference between capital receipts and revenue receipts |
Accounts
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