Accountancy · Ch 11 — Capital and Revenue Transactions
Capital Receipts and Revenue Receipts
Capital Receipts and Revenue Receipts
5. Capital Receipts and Revenue Receipts
Capital Receipts are amounts received that are NOT earned from the normal trading/operating activity of the business, and are not credited to the Profit and Loss Account — they either increase a liability/capital account or reduce an asset. Examples: additional capital introduced by the proprietor, a loan raised from a bank, sale proceeds of a fixed asset (the sale proceeds themselves — any profit/loss on the sale is separately worked out).
Revenue Receipts are amounts earned from the normal trading/operating activity, and ARE credited to the Trading Account or Profit and Loss Account of the year in which they are earned. Examples: sale of goods (the main revenue receipt for a trading business), interest received, commission received, discount received, rent received.
| Basis | Capital Receipt | Revenue Receipt |
|---|---|---|
| Source | Non-operating — loans, additional capital, sale of a fixed asset | Operating — sale of goods, and other regular incomes |
A receipt not earned from normal trading activity (a loan raised, additional capital, sale proceeds of a fixed asset) — not credited to the Tradin …
A receipt earned from normal trading/operating activity (sale of goods, interest received, commission received) — credited to the Trading/Profit and Loss …