Capital receipts and Revenue receipts are two essential terms in the financial aspects of an organization. Nevertheless, the nature and functionality of capital receipts and revenue receipts differ a lot from one another. Are you also the one among those who always mess up between the loop of revenue receipts and capital receipts? Read the below sections to get a comprehensive idea of the difference between capital receipts and revenue receipts.
What Is Capital Receipt?
The first step to getting clarity on the difference between capital receipts and revenue receipts is understanding capital receipt very well. So what is capital receipt actually? Capital receipts are those types of financial receipts that are nonrecurring and you will not get them every time. The most noticeable feature of capital receipt is that it creates liability and affects the company’s assets.
One example of a capital receipt is a firm taking loans from a financial institution like Bank. It has to pay back the loan, and thus it’s a liability. There are basically three broad classifications of capital receipts – Borrowing funds, recovery of loans, and other capital receipts like small savings, disinvestment.
What Are The Characteristics Of Capital Receipts?
Now that you know what are capital receipts, how about some of its core features? Let’s check out the principal characteristics of capital receipts:
- Capital receipts are nonrecurring.
- They originate from non-operational sources.
- Capital receipts cannot be considered as profits.
- You can find capital receipts figures of a company on the Balance sheet.
- Capital receipts are mainly the sales of fixed assets.
What Is Revenue Receipt?
Let us move one more step closer towards getting a clear vision of the difference between capital receipts and revenue receipts. Revenue receipts are those which doesn’t act as a liability or decrease the organizational assets. As they are recurring, your business can earn them from its regular operations.
What Are The Characteristics Of Revenue Receipts?
When it comes to revenue receipts, make sure that they are just the opposite of capital receipts. So pointing out the difference between capital receipts and revenue receipts is not a big deal. Check out the bullet points below to gain a better understanding of revenue receipts.
- Revenue receipts impact the profit loss of a business to a great extent.
- They originate from the operational sources
- You can make the best use of revenue receipts for the distribution of the profits
- Revenue receipts are recurring in nature
- You will be able to find revenue receipts in the income statements
- Revenue receipts in real terms are the sale of businesses and products
Key Highlights Of The Difference Between Capital Receipts And Revenue Receipts
By now, I hope you have understood that receipts are the opposite of expenses. However, both of them are equally important for the long-term financial sustainability of any business.
Now, we have arrived at the most exciting part of the article for which I am sure you all are waiting. The table below elaborates the key takeaways of the difference between capital receipts and revenue receipts.
|Points Of Difference||Capital Receipts||Revenue Receipts|
|Definition||Capital receipts are those types of financial receipts that are nonrecurring and you will not get them every time.||Revenue receipts are those which doesn’t act as a liability or decrease the organizational assets.|
|Nature of Work||It is nonrecurring and required in the long term||It is recurring and requires small-term needs.|
|Availability||Capital receipts are there in the balance sheet||Revenue receipts are there in income statements.|
|Nature of liability or asset||Increases the liabilities and decreases the asset value||Decreases the liabilities and Increases the asset value|
|Source||They root from non-operational aspects||They root from operational aspects|
|Example||Capital asset example is sales of the fixed assets||Revenue asset examples are sales of services or products, discounts from suppliers and vendors|
The table above sums more or less sums the difference between revenue receipts and capital receipts in detail. I hope you won’t struggle with remembering revenue receipts and capital receipts from now on.
Frequently Asked Questions (FAQ):
Q1. What Is The Difference Between Capital Receipts And Revenue Receipts?
The key difference between capital receipts lies in a single fact. A capital receipt is basically non-recurring in nature while are recurring. The former acts as the organizational liability. On the other hand, the revenue receipts remain the income statement of the company. So there is a vast line of difference between capital receipts and revenue receipts.
Q2. What Is The Difference Between Capital Expenditure And Revenue Expenditure?
There is also a significant difference between capital expenditure and revenue expenditure. Capital expenditure comprises single-time massive purchases of the fixed assets of a company. On the other hand, revenue expenditure comprises the ongoing expenses which are short-term in nature.
Q3. What Is An Example Of A Capital Receipt?
An example of a capital receipt is very common. One simple and easily understandable example of a capital receipt is the fund obtained from the issuance of debentures or shares. Some other examples are insurance claims, cash from the sale of fixed assets, disinvestments, loans, etc.
Q4. What Are Some Revenue Receipts Examples?
Some revenue receipts examples are as follows: discount obtained from the suppliers, creditors, vendors, rent received, etc. These are some types of earnings and thus find places in the income statement.
Q5. What Is An Example Of Revenue Expenditure?
The most common example of revenue expenditure is salaries, wages, subsidies, pensions, cost of goods sold (COGS), Insurance, Advertising, etc. It constitutes a majority part of the government expenditure.
The Verdict – Difference Between Capital Receipts And Revenue Receipts
To conclude, the difference between Capital Receipts And Revenue Receipts is something that you must know being a business person. Especially, when it comes to initiating a new business, these concepts need to be clear for better management of finances. You may get confused between capital receipts and revenue receipts, but this article will help you to remember the differences easily.
So that’s it about the difference between Capital Receipts And Revenue Receipts. Do you have any questions for us? Post them in the comment area below. Also, feel free to add any other viewpoints, if you have any.
Mashum Mollah is a tech entrepreneur by profession and passionate blogger by heart. He is on a mission to help small businesses grow online. He shares his journey, insights and experiences in this blog. If you are an entrepreneur, digital marketing professional, or simply an info-holic, then this blog is for you. Follow him on Instagram, Twitter & LinkedIn