Capital and Revenue Receipts

Introduction

Capital receipts are given when a company makes an asset. Revenue receipts are given to you every year as a tax statement.

This article explains the difference between capital receipts and revenue receipts. It talks about those receipts that are a part of revenue such as income from taxes, public borrowing, fees charges collected by the government, and income from public undertakings. It also discusses capital receipts such as the sale of assets and loans from abroad.

What are Capital and Revenue Receipts?

Capital and revenue receipts are two different ways of categorising the cash a business receives.

• Capital receipts are amounts from sales of long-term investments or assets, such as land and buildings which are not part of the normal trading activities
• Capital receipts are payments for bigger items of expenditure, whereas revenue receipts are for day-to-day expenditure
• Revenue receipts are amounts from sales of normal trading activities or asset sales that will be replaced in the near future
• The revenue receipts are the receipts of money because of the sale of goods, rendering services, etc., and do not require the Government to spend money
• These receipts consist of revenue from taxes (such as sales tax, excise tax, service tax, customs duties, etc.), other non-tax revenue (such as interest receipts, revenue from public enterprises, etc.), and grants and loans given by other Governments and institutions

What is the difference between Capital and Revenue Receipts?

The difference between capital and revenue receipts is based on the working of an expenditure.

Capital receipts are the receipts that derive their value from the capital. In general, all bought assets are capital and the money paid to acquire such assets is known as capital receipts. 

Revenue receipts are the receipts that derive their value from the operational activities of the business. Income earned from sales of goods, profit on the sale of fixed assets, etc. is known as revenue receipts.

Think of revenue as money that comes into your business during the course of normal operations or events. Most of your business’ revenue is what you earn by selling your product or service to customers.

Similarities between Capital and Revenue Receipts

• The similarities between the capital receipts and revenue receipts are that both support sustainable funding of a company with the aim of achieving its objectives
• Both the capital receipts and revenue receipts are the income of the government
• The capital receipts are obtained from selling public assets like selling shares in public sector undertakings or loans to other countries
• Capital receipts are long-term income from the sale of long-term assets such as land, buildings and machinery
• Revenue receipts are short-term income from the operation of a business
• The profit or loss that occurs in any one accounting period is an example of a revenue receipt
• Receiving capital and revenue receipts are both used to classify financial transactions
• Both are the result of an exchange between two economic entities that involve cash and credit
• Both are considered as current income
• Both are short-term
• Both come and go in the same accounting period in which they are earned

Capital and Revenue Receipts Examples

To understand it better. Here are some examples of capital and revenue receipts-

Capital Receipts Example: The sale of assets, such as property or equipment, is an example of a capital receipt. Another example of a capital receipt is a payment made to a business by an investor. This includes loans from banks, venture capital funding, and loan payments. Capital receipts are typically not used for “Earnings Generation”; instead, the proceeds are put in the cash account to add to the net worth of the business.

Revenue Receipts Example: Sales of services or goods can be called revenue receipts. Revenue Receipts examples include Sales invoices, Tax invoices, and Cash memos. Other examples of revenue receipts are fees, gifts, donations, grants, fines, penalties, royalties, and interests. Revenue receipts may also be called Operating Income when they are earned as part of a company’s main operations and that is recorded on its income statement.

Conclusion

Capital Receipts result in the formation of new assets for the company and increase the net worth of the business. Revenue receipts are related to the current operations of a business and do not add long-term value to the company.