An introduction

In this article, we will discuss revenue receipts. But before moving further, let’s understand what a receipt is.

What is a receipt? 

Receipts mark the moment that something like payments for receiving any good or cash has been acknowledged.  In accounting terms, receipts tell a lot about any business. Generally, these are the earnings of any organization, and through this revenues are generated. Not all receipts directly affect the profit or loss.  But, some of these receipts affect directly. Receipts can be categorized into:

• Revenue receipt

• Capital receipt

In simple terms, capital receipts don’t affect the profit and loss of any business but revenue receipts affect the profit and loss of a company. Sales of products, and the commission received are examples of revenue receipts. 

What are revenue receipts? 

So, revenue receipts are important for any business.  This is the money earned by the business through its day-to-day operational activities. The government receives them in the normal course of regular activities. These receipts include the proceeds from taxes, and other duties levied by the government, the fee or charges that government receives for its services, and the interest or dividend which it receives on the investments. 

These receipts are recurring and are required to be disclosed in the statement of income of any business.  In general terms, it suggests that the goods or services have been delivered to the clients, and an income has been received in return. 

So, a receipt is termed as revenue, if it fulfills the two basic conditions:

• No liability – The receipt cannot create a liability for the business. Any kind of borrowing/loan is not a revenue receipt. 
• No reduction in assets – The receipt must not cause any decrease in the assets of the business. For example- any receipt from a sale of investments is not revenue receipt as the stake sale leads to the reduction in the assets. 

Example of revenue receipts

Some examples of revenue receipts are:

• Any kind of rent received
• Interest earned
• Money received from goods and services provided to the clients
• Discount received from the vendors, suppliers, or the creditors
• Any bad-debts recovered
• Divided received
• Revenue earned by any waste or scrap material, etc. 

So, revenue receipts have a long-lasting effect on the profits/incomes generated by an organization. 

Revenue receipts of government are classified under two categories

Tax revenue

Non-tax revenue

Tax revenue

Tax revenue refers to the total receipts from taxes or other government duties. Tax is an important and mandatory payment done by the payer, and organizations to the government. It doesn’t have any reference to any kind of direct benefit. Tax revenue is the major source of the revenue receipts of the government. 

Non-tax revenue

Income from sources other than taxes is referred to as non-tax revenue. The main sources of non-tax receipts are dividends, profits, fees, interests, fines, and external grants. 

Important features of revenue receipts 

• Method of sustaining – Any business begins its operations in expectation of receiving money for providing products or services to the customers. In the absence of revenue receipts, a business can’t sustain for long as these are collected from the direct activities of the business. 

• Recurring – Revenue receipts offer benefits for a shorter period, but these are recurring.

• Applicable for the short term – Revenue receipts include the money which is received for a short period of time. The advantage of such receipts is that they are valid only for one accounting year.

• Effects on the profit and loss – Receiving revenue affects the profit/loss of any organization. Whenever revenue is received, it means either the loss is reduced, or profit is increased.  

• Smaller volume – The number of revenue receipts is smaller as compared to the capital receipts. But they are nevertheless smaller in any way. For a company selling hundreds of thousands of products in a year, the revenue receipts generated would be very high in number. This could exceed any other kinds of receipts i.e. capital ones. 

This was all about revenue receipts; let’s move ahead to capital receipts to understand the difference between the two.

What are capital receipts? 

Capital receipts create liabilities or reduce the asset of an organization. These receipts are non-recurring. So, it’s clear that any receipt is called a capital receipt if it adheres to the below conditions:

• It reduces the assets of a company
• It creates liability 

Capital receipt example

Loans from the general public, financial institutions, or banks form a crucial part of the capital receipts. These are both debt and non-debt receipts. These receipts are termed as non-tax receipts unless there is any provision to tax them. 

Some other capital receipts are:

• Money received from shareholders
• Loans taken from banks
• Money received from the debenture holders
• Sale of investments
• Sale of equipment
• Insurance claim from any damaged machinery

Difference between revenue and capital receipts 

• Revenue receipts are recurring in nature while capital receipts are non-recurring.
• Revenue receipts are obtained in the course of normal business activities but the capital ones are not obtained in the course of normal business activities.

Revenue receipts are received from the sales of goods, use of any business resources yielding any interest, and dividend. But on the other side, capital receipts are obtained from the issuance of shares, borrowings/loans, and the sale of any fixed assets.

Conclusion 

Understanding these receipts and how they affect any business will help you run the daily operations more effectively. If your business has more amount in revenue receipts compared to the capital receipts, then investors can much more likely to invest in it as your business is beyond the survival level.