Capital Receipt vs. Revenue Receipt — What's the Difference?

Capital Receipts refer to the funds received by a business or government from sources that are not related to their regular operational activities, usually involving financial adjustments like acquiring loans or selling assets. On the other hand, Revenue Receipts represent the funds received from the core operational activities, typically recurring and contributing to the ongoing sustainability of the entity, like sales revenue or service fees.

In terms of business operations, Capital Receipts are usually infrequent and can involve alterations to the financial structure of the entity, often implying a future obligation like repayment of a loan. In contrast, Revenue Receipts are recurring and regular, maintaining the operational regularity of the business, without creating liabilities or reducing assets.

Capital Receipts usually do not impact the Profit & Loss account as they are associated with the financing or investing activities of an entity, like proceeds from the sale of fixed assets or from issuing shares. Conversely, Revenue Receipts directly impact the Profit & Loss account since they are derived from the day-to-day operations of the business, contributing to the entity's net income or loss.

The treatment of Capital Receipts in financial statements is typically under balance sheet accounts, reflecting changes in the asset, liability, or equity sections. Revenue Receipts, however, are recorded in the income statement, portraying the entity's operational performance and contributing to the computation of net profit or loss.

In summary, Capital Receipts and Revenue Receipts are integral components of financial accounting, distinctly categorized based on their origin and impact on the financial statements. While Capital Receipts involve substantial alterations to the entity’s financial structure, usually from non-operational activities, Revenue Receipts ensure the ongoing operational sustainability, originating from the core business activities.