Question

Capital receipts are shown in the:

• A. Credit side of Trading and Profit & Loss account
• B. Debit side of Profit and Loss account
• C. Balance sheet as increase in liabilities or reduction in assets
• D. Cash flow statement only

Answer 1

Answer:

C. Balance sheet as increase in liabilities or reduction in assets

CLASSIFICATION OF RECEIPT:

• It is necessary to make a proper distinction between capital receipts and revenue receipts because the revenue receipts are shown on the credit side of the Trading and Profit and Loss account whereas capital receipts are shown in the Balance Sheet.

Receipts are classified as:

• 1. Capital Receipts

• 2. Revenue Receipts

1. Capital Receipts

• Amount received from sale of fixed assets is called capital receipts.

• Capital receipts are non-recurring in nature.

• It should be shown on the Balance Sheet as Increase in liabilities or as reduction in the value of the asset.

• If the receipts imply an obligation to return money or amount received from sale of fixed assets is capital receipts.

Example for Capital Receipts:

1. Capital contributed by the owner

2. Amount received on sale of fixed assets or investments

3. loan taken from bank

2. Revenue Receipts

Example for Capital Receipts:

1. Capital contributed by the owner

2. Amount received on sale of fixed assets or investments

3. loan taken from bank

REVENUE RECEIPTS:

• Revenue receipts are money received by a business as a result of its normal business operations like selling its products or providing services.

• It is recurring in nature.

• If a receipt does not incur an obligation to return the money or is not in the form of a sale of fixed asset, it is termed as revenue receipts.

Example for Revenue Receipts:

• 1) Cash received from sale of goods, commission received, interest received, dividend received, rent received etc.