Capital receipts are non-business income that either reduces the assets or increases the liabilities of a business. Simply put, these are receipts for income generated through occasional capital activities and not routine operating activities.
It is also a written record of payment made in exchange for goods or services. Because of the capital nature of these receipts, they are a part of the balance sheet of an organisation and not the profit and loss statement.
Read on to better understand capital receipts with examples, their types, features, and differences from revenue receipts.
These receipts help in maintaining a business’s cash inflows from financial activities apart from business operations. These are not the business’s main source of income and may lead to reduced assets or increases in liabilities. You must record these receipts on accrual basis, and since they are non-recurring, you cannot use them for the distribution of profits.
These receipts primarily fall into two categories, as stated below:
Knowing these features will help you distinguish these receipts from other capital gains.
Here are some other financial activities that fall under this category:
As opposed to capital receipts, revenue receipts are income generated from the key resource for a company. Here are the differences between them:
| Particulars | Capital Receipts | Revenue Receipts |
|---|---|---|
| Meaning | Funds generated from the financial activities | Funds generated from the operational activities |
| Example | The amount received from the loan, disinvestment, insurance claim, etc. | The amount received from sales, services, and other day-to-day activities |
| Nature of Funds | They are non-recurring | They are recurring |
| Shown in | They are recorded in the balance sheet | They are recorded in the income statement |
| Impact on profit | They do not impact the business’s profit or loss | Revenue generated from business activities directly affects the profit |
| Term | They have short-term benefits for the company | This has long-term benefits for the company |
| Impact on Financial Statements | These show an increase in the cash flow and liabilities | These result in an increase or decrease in the company’s income |
| Tax | Usually, they are not subject to income tax, but in some cases, capital gains tax may apply | These are subject to income tax |
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These receipts can be classified into two types – debt and non-debt, depending on whether they increase the liability or reduce the assets of the company.
The taxation of these receipts depends on how they are generated. If they are from the transfer of capital assets, they will be subject to capital gain taxation. If there is no asset involved, they are not taxed.
