Capital Receipts
When an organization receipts capital from owner(s) or shareholders and takes long-term loan from outsider, it is known capital receipts. Some capital receipts are:
Amount received from owner (s) or shareholders as capital.
Amount received by issuing shares and debentures.
Amount received as long-term loan etc.
When an organization receipts amount by selling goods or service provide, it is known revenue receipts.
Some revenue receipts are:
Amount received from sales of goods or service provide.
Rent received from sub-let.
Dividend received from investments etc.
Differences between Capital and Revenue Receipts
Bases |
Capital receipts |
Revenue receipts |
Nature |
Capital receipt is non-recurring in nature. |
Revenue receipt is recurring in nature. |
Sources |
Main sources of capital receipts are sales of fixed assets, issue of shares and debentures. |
Main sources of revenue receipts are sales of goods and service provide. |
Purpose |
Its main purpose is to purchase fixed assets or improve their life. |
Its main purpose is to manage day-to-day business activities. |
Capital Expenditures
When an organization purchases permanent assets or improves their life, it is known capital expenditures.
Some capital expenditures are:
Purchase of fixed assets like land and building, plant and machinery, furniture, equipment.
Transport, installation and erection charges of fixed assets.
Legal charges and registration charge for purchasing fixed assets etc.
When an organization incurs expenses for operation activities of the business, it is known revenue expenditures.
Some revenue expenditures are:
Purchase of raw materials for manufacturing company.
Purchase of finished goods for resale.
All manufacturing expenses etc.
Some revenue expenditures are incurred in advance for several years.
These expenditures will provide benefit for the organization.
Some deferred expenditures are:
Pre-operation costs.
Preliminary expenses.
Heavy advertisement etc.
Differences Between Capital And Revenue Expenditures
Bases |
Capital expenditures |
Revenue expenditures |
Nature |
It is non-recurring in nature |
It is recurring in nature |
Purpose |
It is incurred to purchase fixed assets or improve their life. |
It is incurred to manage day-to-day business activities. |
Term |
It is for long-term; more than one year. |
It is for short-term; less than one year. |
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When organization sales its assets more than book value or issues shares and debentures at premium, it is known capital profit.
Some other capital profits are:
Profit on sales of fixed assets.
Profit on sales of investment.
Premium on issue of share and debentures.
When organization sales goods or service at more than purchase value, it is known revenue profit.
Some revenue profits are:
Sales of goods at more than purchased value.
Provide service at more than hired value etc.
Differences between Capital and Revenue Profits
Bases |
Capital profit |
Revenue profit |
Nature |
It does not occur in normal business operation. |
It occurs in normal business operation. |
Distribution |
It is not distributed to shareholders as dividend. |
It is distributed to shareholders as dividend. |
Use |
It is used to adjust capital loss; balance transferred to capital reserve. |
It is used to distribute as dividend and creates capital and general reserve. |
Capital Losses
When organization sales fixed assets at less than book value or issues shares and debentures at discount, it is known capital loss.
Some other capital losses are:
Loss on sales of fixed assets.
Loss on sales of investment.
Discount on issue of share and debentures.
When organization sales goods or service less than purchase value or operating expenses are more than value of goods sold, it is known revenue loss.
Some revenue losses are:
Sales of goods at less than purchased value.
Provide service at less than hired value.
Loss by fire or theft etc.
Differences between Capital and Revenue Losses
Bases |
Capital loss |
Revenue loss |
Nature |
It does not occur in normal business operation. |
It occurs in normal business operation. |
Causes |
It occurs due to sales of fixed assets at loss or issue of shares and debentures at discount. |
It occurs due to heavy operating expenses but low turnover/sales. |
Indication |
It does not indicate inefficiency of business. |
It indicates inefficiency of business. |
Capital Reserve
Capital reserve is created out of capital profit.
It is also created from operating profit for specific purpose.
Capital reserve is created from:
Profit on sales of fixed assets.
Premium on issue of share and debentures etc.
Profit on share forfeiture
Revenue Reserve
Revenue reserve is created out of operating profit.
It is undistributed operating profit.
Some revenue reserves are:
General reserve.
Sinking fund (depreciation fund).
Dividend equalization fund etc.
Differences Between Capital And Revenue Reserve
Bases |
Capital reserve |
Revenue reserve |
Source |
Capital profit is source of capital reserve. |
Revenue profit is source of revenue reserve. |
Use |
It is used to adjust capital loss. |
It is used to pay dividend and replace fixed assets. |
Indication |
It does not indicate inefficiency of business. |
It indicates inefficiency of business. |
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