What Is Revenue Receipt? What Are The Differences Between Revenue Receipts And Capital Receipts?

Every organisation earns receipts in two ways – revenue receipts and capital receipts. The former deals with money received during their routine course of operation. This includes income earned from selling goods or services, interest receipt, etc. Revenue receipts lead to an overall increase in the company’s total revenue and are used to create reserve funds. 

On the other hand, capital receipts are those that lead to a reduction in assets or create a new liability. This involves income earned from selling any tangible and intangible asset or loan borrowed from an entity. Read on to know more about revenue receipts, their types and features.

What are Revenue Receipts?

Any income earned from the core business operation of a company or business is known as the revenue receipt. These receipts directly influence the profit or loss of the entity as they come from core business activity. This receipt is of a recurring nature and is used to meet the daily expenses of the business.

What can we understand from Revenue Receipts?

Revenue receipt does not create any liability for the business, nor does it lead to any company assets reduction. You can find revenue receipts in a company’s trading and profit and loss accounts.

They are a source of cash inflows for the company and lead to an increase in its total revenues. One can get an idea about the financial health of the business by looking at the revenue receipts.A lower or negative revenue receipt indicates weak core business operations of the company. On the other hand, a high revenue receipt indicates the sound financial health of the business.         

Examples of Revenue Receipts

A few examples of revenue receipts are:

• Income from the sale of inventory goods
• Income earned for rendering services to customers
• Discounts received from suppliers or creditors
• Interest income
• Rent receipts
• Dividends earned from shares held by the company
• Bad debts recovered
• Commissions earned

Types of Revenue Receipts

Receipts are classified under two heads – revenue and capital receipts. The revenue receipts are further sub-classified into tax revenue and non-tax revenue.   

1. Tax Revenue Receipts

An organisation receives tax revenue receipts from the income generated from property, individuals of the company or the overall company. 

The direct taxes on tax revenue receipts are directly paid to the Central Government in the form of income tax, corporation tax, wealth tax, property tax, etc. There is no intermediary in the case of direct tax. 

On the other hand, a company pays indirect tax on revenue receipts through an intermediary. Examples of indirect taxes are goods and services tax, excise duties, customs, etc. 

2. Non-Tax Revenue Receipts

The non-tax revenue receipts include several kinds of payments that are earned without taxing the public. These constitute the following: 

• Fee or penalty received by the business.
• Dividends or profits received from investments.
• Interest received on account of loans given to various borrowers. These include both external and internal borrowers. 
• Income received for general services.

Features of Revenue Receipts

Here are some features of revenue receipts: 

• Revenue receipts are those that come from core business operations of the company or a profession. 
• All revenue receipts must be recorded on the credit side of Profit and Loss accounts. 
• Companies may use part of revenue receipts to create reserve funds. 
• Companies can accrue short-term benefits from revenue receipts. 
• Revenue receipts will either increase profits or lead to losses. 
• These are of recurring nature.

Differences between Revenue Receipts and Capital Receipts

The differences between capital and revenue receipts are as follows: 

Parameter	Revenue receipts	Capital receipts
Meaning	Revenue receipts come from core operational activities of the business.	Capital receipts are those that come from the financial activities of the business.
Nature	They are recurring in nature	They are non-recurring in nature
Impact on profit	The revenue receipt of a company has an impact on its profits.	Capital receipt of an organisation has no or minimal impact on its profits.
Examples	Receipts from sale of goods or services offered by the business constitute revenue receipts.	Receipts from sale of assets of the business are capital receipts.
Disclosure	Companies disclose these receipts on the income statement.	These are shown in the liabilities section of a company’s balance sheet.
Reserve surplus	Companies can use these receipts to create a surplus.	Companies cannot use capital receipts to create a reserve surplus.

Types of Capital Receipts

Now that we have understood the differences between revenue and capital receipts, here are the different types of capital receipts that one should be aware of:

1. Borrowings

All loans taken by the company from external and internal sources come under capital receipts. Loans taken for business purposes create a liability for the company as they have an obligation to repay that. This is the reason why any borrowings are considered capital receipts. 

2. Sale of Assets

All income that a company earns from the sale of assets comes under capital receipts. This includes the sale of tangible as well as intangible assets. There is a reduction in the assets of the company; hence, it comes under capital receipt. 

3. Other Capital Receipts

 There are other capital receipts like income earned from disinvestment, small savings, etc.

Final Word

Revenue receipts are one of the most critical components of any business. Every business organisation or professional ventures always strive to keep the revenue receipts positive as it is a critical benchmark that indicates the financial strength of the business. 

FAQs on Revenue Receipts

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.