Capital and Revenue

Indifferences

Venkatesh Reddy 10/11/20 Finance Assignment

 Capital Receipt Revenue Receipt

Definition: Capital receipts are the income
received by the company which is non-
recurring in nature. They are generally part
of financing and investing activities rather
than operating activities. The capital
receipts either reduces an asset or increases
a liability. The receipts can be generated
from the following sources:
 Issue of Shares
 Issue of debt instruments such
as debentures.
 Loan taken from a bank or
financial institution.
 Government grants.
 Insurance Claim.
 Additional capital introduced
by the proprietor
Definition: Revenue Receipts are the receipts
which arises through the core business
activities. These receipts are a part of normal
business operations that is why they occur
again and again however its benefit can be
enjoyed only in the current accounting year as
its effect is short term. The income received
from the day to day activities of business
includes all the operations that bring cash into
the business like:
 Revenue generated from the
sale of inventory
 Services Rendered
 Discount Received from the
creditors or suppliers
 Sale of waste material/scrap.
 Interest Received
 Receipt in the form of
dividend
 Rent Received

Basis for comparison Capital Receipt Revenue Receipt

Nature Non- Recurring Recurring

Term Long Term Short Term

Shown in Balance Sheet Income Statement
Received in exchange Source of Income Income
of
Value of Asset/Liability Decreases the value of asset or Increases the value of asset or
Increases the value of Liability Decreases the value of
Asset/Liability

Capital Profit Revenue Profit

 Capital profit is earned by selling assets,
shares and debentures at a price more Revenue profit is earned in the ordinary
than their book value and face value. course of the business.

Capital profits are either capitalized i.e.

transferred to capital account or They appear in the profit and loss account
transferred to capital reserve account and are available for distribution as profit,
which may be utilized for meeting capital or for creating reserves and funds, or for
losses. being used in the business.

Capital profit is not available for the

distribution to shareholders as dividend. Revenue profit is available for the
distribution to shareholders as dividend.

Includes:

 Profit earned on the sale of fixed assets Includes:

(excess of selling price over the cost
price).  Discount received.

 The premium on issue of securities.  Profit from the sale of goods.

 Profit from the absorption of another  Commission received.

firm.  Interest received.
 Discount on redemption of securities.  Profit on the sale of fixed assets (excess
 Profits prior to incorporation. of cost overwritten down value).

 Profit remaining on Re-issue of forfeited  Profit on sublet.

shares.

Capital Losses Revenue Losses

Capital losses are those which occur Revenue losses are the losses which arise
when fixed assets or raising share capital during the normal course of business.
 and debentures are sold at a price less
than their face value or book value.
Does not occur in normal course of
business.
They are shown in the balance sheet on
the assets side.
Includes:
 Accidental loss of fixed assets.
 issue of securities at discount.
 Redemption of securities at the premium.
 Embezzlement of case by the
unauthorized person.
 Obsolescence losses. losses by flood and
earthquake etc.
Results due to inefficiency in operating
regular activities of the business and from
the heavy amount of operating expenses
and low amount of turnover.
They are shown as debit balance on
the debit side of the trading and profit and
loss accounts.
Includes:
 Embezzlement of cash by the cashier.
 Embezzlement of goods by the
storekeeper.
 Bad debts.
 Loss by fire of unsecured goods.
 Depreciation loss on sale of depreciable
asset.
 Provision for doubtful debts and loss of
goods due to the carelessness of the
employee.