Capital and Revenue Receipts

A receipt of money may be of a capital or revenue nature. A clear distinction, therefore,
should be made between Capital receipts and revenue receipts.

A receipt of money is considered as capital receipt when a contribution is made by the proprietor
towards the capital of the business or a contribution of capital to the business by someone
outside the business. Capital receipts do not have any effect on the profits earned or losses
incurred during the course of a year. Capital receipts can take one or more of the following
forms:
Additional capital introduced by the proprietor; by partners, in case of partnership firm, by
issuing fresh shares, in case of a company; and, by selling assets, previously not intended for
resale.
A receipt of money is considered as revenue receipt when it is received from customers for
goods supplied or fees received for services rendered in the ordinary course of business, which
is a result of the firm’s activity in the current period. Receipts of money in the revenue nature
increase the profits or decrease the losses of a business and must be set against the revenue
expenses in order to ascertain the profit for the period.

The following are the points of distinction between capital receipts and revenue receipts

Capital Receipts	Revenue Receipts
1. Capital receipts are not available for distri bution as profits	1. Revenue receipts are available for distri distribution as profits only after deducting revenue expenses.
2. Capital receipts cannot be utilised for creating a reserve fund.	2. Revenue receipts can be utilised for creating a reserve fund after deducting revenue expenses.
3. A business can survive without any accounting period.	3. The survival of a business mainly de capital receipts during an pends on the revenue  receipts during an accounting period.
4. Capital receipts are the sources for creating capital reserves.	4. Revenue receipts are the sources for  creating revenue reserves.