---

Guest post by: Anil Kumar Gupta Become an Author

Tweet

---

---

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.

Related Articles

  Increase Revenue Ideas,Increasing Revenue
  Sales Training London How Do You Make Money When You Lose the Sale
  Is $100,000 a Lot of Money to You?
  Which of these revenue models is right for you?
  Beware the Hockey Stick in Your Budget
  The relationship of revenue growth to your job?
  Move from Mild Success to Wild Success
  Best Way to Sell and/or Manage a Sales Force?
  What are Royalty Fees?
  What are Franchise Royalty Fees?
  Google AdSense Strategies – Anticipating and Maximizing Holiday Season Revenue
  Have you created a niche market for your business?
  Startups and the Dilemma of the First Sales Hire
  Sales Management Training Tips: Sales are down. What can you do?
  Breakeven Analysis
  Payroll and Bookkeeping Outsourcing Services
  Teleseminars - A Winning Price Point For Backend Products
  Peace for Profits
  Are you making the best use of your sales time?
  Using Customer Service To Generate Incremental Revenue

Related Forum Posts

hiring an employee
Ad reveue sharing
Setting up Revenue Sharing Program
AdSense revenue sharing
2007 Goals

Share this article. Fund someone's dream.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Blogheads

Are You My Mentor

How to Find Your Own Unique Selling Proposition

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.