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Revenue

Written by: Anil Kumar Gupta

Article Overview: According to Paton and Littleon, "Revenue is the product of the entity which refers to the goods and services created during a specific time span by an enterprise."

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Revenue

According to American Accounting Association, Committee on Accounting Concepts and Standards, "Revenue is the monetary expression of the aggregate of products or services, transferred by an enterprise to its customers during a period of time."


Capital and revenue receipts

Capital receipts of business comprise of capital contributed by partner or by the shareholders; loans ; sale proceeds of any fixed asset, etc. In case of clubs and associations, receipts on account of life subscriptions; entry fee; government grants; legacies and endowments are capital receipts. Revenue receipts of a business are, cash from sales, discount received, commission, interest on investment etc. In case of club etc. annual subscriptions; sale of golf clubs and balls; receipts arising out of the premises being given to others for use on charges.

Revenue receipts are treated in the revenue account (trading and profit and loss account) while the capital receipts are treated in the balance sheet.

Whether a particular receipt is capital or revenue? The following guidelines may be stated:

- Nature of receipts is to be determined by its character in the hands of the person receiving it not by the source from which payment was made e.g., Payment of interest out of capital, by a company still under construction is capital expenditure for the company but revenue receipt in the hands of the person receiving it.

- In case of a single transaction of purchase and sale of property the motive of the owner will decide whether the receipt is capital or revenue e.g., A sells shares held by him as investment, it is a capital receipt but if A sells the shares with speculative motive it would be a revenue receipt.

- A receipt on account of fixed asset is a capital receipt while a receipt on account of current asset is a revenue receipt, e.g., sale proceeds of building, plant etc., constitute capital receipt while sale of stock-in-trade is revenue receipt.

- Where a receipt is in substitution of a source of income it is a capital receipt: but if it is' in substitution of income alone, it is a revenue receipt e.g. if a railway passenger meets with an accident and dies or is permanently disabled, the compensation received from the railway company is capital receipt because this receipt is in substitution of source of income i.e. his life but if he is rendered only temporarily disabled the receipt will be revenue one, as it is in substitution of income alone i.e. loss of earnings during the period of disablement.

Where a sum is received for the surrender of certain right, it is capital receipt but where the sum received is in the nature of compensation for loss of future profits it is a revenue receipt e.g., A, the lease holder of fire-clay field and manufacturer of fire-clay goods, was prevented by the railway company for working on the field adjacent to the railway lines. Amount paid by the railway company to A is capital receipt, because it is the receipt in lieu of his right to work upon the clay field.

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Home > Accounting > Anil Kumar Gupta > Revenue
Article Tags: accounting concepts, aggregate, american accounting association, association committee, balance sheet, capital expenditure, capital receipt, capital receipts, current asset, endowments, golf clubs, government grants, legacies, life subscriptions, motive, profit and loss, profit and loss account, revenue receipts, shareholders loans, time capital

About the Author: Anil Kumar Gupta
RSS for Anil's articles - Visit Anil's website

Proprietor of HiTech Computer Services, Anil Kumar Gupta, Bachelor of Engineering (Hons.) in Electrical and Electronics Engineering from Birla Institute of Technology and Science, Pilani, India, Year of passing : May, 1985, is born on January 7, 1964 , Age : 40+, and is Indian national. Services Offered by HiTech Computer Services : Standard software for various business segments, Customized Software Development, Websites and web based ASP applications development, Financial Accounting and business management software, website hosting and promotion. HiTech Group Websites, Visit us at: www.hitech-on-web.com * www.accounts-on-web.com * www.e-trading.bz * www.accountingsoftware.bz * www.onlineaccounting.bz * www.websitedesign.bz * www.softwaredevelopment.bz * www.businesssoftware.tv * www.businessaccounting.in * www.freeaccounting.in * www.freeaccountingsoftware.org * www.freesoftware.US.com * www.accounting.EU.com * www.our-earth.net * www.CityAtLeisure.com

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