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Capital and Revenue Receipt, Gain, Loss and Reserve

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Capital and Revenue Receipts

Capital Receipts
Capital receipts are the amount received from the owner as capital, the loan from outsiders and proceeds from the sale fixed assets. They are non-recurring in nature. In other words, the capital receipt is the receipt which does not result from the regular course of business. For example:

  • Capital received from the owner.
  • Proceeds from the sales of shares and debenture of the company.
  • Loan taken from others.
  • Sales proceed from fixed assets.
  • Donation, aid etc. for non-profit making the organization.

Revenue Receipts
Revenue receipts are the receipt or incomes that arise from day to day business activities. The revenue received from the sale of product and service are revenue receipts. Revenue receipts are shown as income in the income statement. For example:

  • An amount received throght the sales of goods.
  • An amount received from rendering services.
  • Income from an investment.
  • Rent from tenants.
  • An amount received from the sale of used/old stationery and newspapers.

Capital and Revenue Profit/Gain

Capital profit
The profit that is earned through capital items is called the capital profit. Profit on sale of fixed assets and shares and debentures, valuation of assets is called profit. It is not recurring in nature. For example:

  • Increase in value of assets through revaluation.
  • Profit from sale of shares and debenture on premium.

Revenue Profit
Profit earned by business firm its day activities id called revenue profit. It is also called as operating profit. It is calculated from the income statement. For example:

  • Excess of income over expenditure
  • Discount on purchase
  • Loss-compensated
  • Bad debts recovered


Capital and Revenue loss

Capital loss
The losses that incur on capital items is called capital loss. Shares and debentures issued at discount, premium on redemption of debentures, loss on sale of fixed assets are also capital losses. They are not debited to profit and loss account rather shown as a fictitious asset in the balance sheet.


Revenue loss
The loss, which arises during the normal ( day-to-day) course of business activities is known as revenue loss. It is the negative difference between revenue income and revenue expense such losses are ascertained from profit and loss account.

Capital and Revenue Reserve

Capital Reserve
A reserve created out of capital gain is called capital reserve. For example, reserve created from a gain on revaluation of assets and liabilities, gain on sale of assets, shares and debentures, forfeiture of shares ans redemption of debentures are capital reserves. They are shown on the liability side of balance sheets.

Revenue Reserve
A reserve created out of revenue profit is called revenue reserve. Revenue profit refers the undisturbed profit of a business. For example; general reserve, dividend equalization reserve, research and development fund, sinking fund etc. Such reserves are shown in liabilities side of balance sheet.



  • Capital receipt are the amount received from the owner as capital, loan from outsiders and proceeds from the sale fixed assets.
  • The profit that is earned through capital items is called the capital profit. 
  • The losses that incur on capital items is called capital loss. Shares and debentures issued at discount, premium on redemption of debentures, loss on sale of fixed assets are also capital losses. 
  • The loss, which arises during the normal ( day-to-day) course of business activities is known as revenue loss. 
  •  A reserve created out of capital gain is called capital reserve.
  • A reserve created out of revenue profit is called revenue reserve.
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Very Short Questions

The following are the differences between capital receipt and revenue receipt:

Bases of difference

Capital Receipt

Revenue Receipt

Source

Capital receipt is the amount received from the sale of fixed assets, shares and debentures.

Revenue receipt is the amount received from the sale of goods and services.

Nature

It is of non-recurring nature.

It is of recurring nature.

Impact

Its main items are capital and loan, which affect financial position of the business.

Its main items are sale of merchandise, discount and commission, which affect operating results of the business.

Treatment

It is shown on the liabilities side of the balance sheet.

It is shown on the credit side of the trading and profit or loss accounts.

The following are the differences between capital profit and revenue profit:

Bases of difference

Capital Profit

Revenue Profit

Mode of earning

Capital profit is earned by selling assets, shares and debentures at a price more than their book value and face value.

Revenue profit is earned in the ordinary course of the business.

Distribution

It is not available for the distribution to the shareholders as dividend.

It is available for the distribution to the shareholders as dividend.

Use

It is transferred to capital reserve and used for meeting capital losses.

It is used to distribute dividend and create reserve and fund for various purposes.

Treatment

It is shown on the liabilities side of the balance sheet as capital reserve.

It is shown as the credit balance of the trading and appears on the liabilities side of the balance sheet as retained earning.

The following are the differences between capital loss and revenue loss:

Bases of difference

Capital Loss

Revenue Loss

Causes

Capital loss occurs due to the sale of assets, shares and debentures at a price less than their book value or face value.

Revenue occurs due to the heavy amount of operating expenses and low turnover or sales.

Nature

It does not occur in the normal course of the business.

It occurs in the normal course of the business.

Indication

It does not indicate the inefficiency of the business.

It indicates the inefficiency of the business.

Treatment

It is shown on the asset side of the balance sheet.

It is shown as debit balance on the debit side of the trading and profit and loss accounts and on asset side of the balance sheet as accumulated loss.

The following are the difference between capital reserve and revenue reserve:

Bases of difference

Capital Reserve

Revenue Reserve

Source

Capital profit is the source of capital reserve.

Revenue profit is the source of revenue reserve.

Use

It is used to meet capital losses.

It is used to strengthen the financial position, distributes dividend, replace fixed assets, and redeem liabilities.

Indication

It does not indicate the operating efficiency of the business.

It indicates the operating efficiency of the business.

Existence

It does not exist if there is no capital profit.

It may exist if there is loss in a particular year.

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  • ______ are the amount received from the owner as capital, loan from outsiders and proceeds from the sale fixed assets . 

    Revenue gain
    Revenue receipts
    Capital receipts
    Capital gain
  • Capital receipts are ______ in nature.

    recrudescing
    recurring
    non-recurring
    flaring up
  • ______ are the receipt or incomes that arise from day to day business activities.

    Capital receipts
    Revenue loss
    Capital gain
    Revenue receipts
  • The example of revenue receipt is:

    Increase in value of assets through evaluation
    Capital received from owner
    Rent from tenants
    Loss-compensated 
  • The example of capital receipt is:

    Discount on purchase
    Capital received from owner
    Rent from tenants
    Amount received from rendering services.
  • The example of capital gain is:

    Increase in value of assets through evaluation
    Amount received from rendering services
    Sales proceeds from fixed assets.
    Loss-compensated 
  • The example of revenue profit is:

    Rent from tenants
    Discount on purchase
    Capital received from owner
    Amount received from rendering services.
  • A reserve created out of revenue profit is called ______ . 

    capital loss
    revenue gain
    capital reserve
    revenue reserve
  • The loss, which arises during the normal ( day-to-day) course of business activities is known as ______. 

    capital receipt
    revenue receipt
    capital loss
    revenue loss
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