What is the Revenue Receipts in Accounting

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Revenue Receipts-This is an important type of receipt. By this article, you are going to understand all about Revenue receipts such as definition, examples, identification, calculation, types, and more faqs related to Revenue receipt in accounting terms.

What are the Revenue receipts?

Receipts that are obtained in course of normal business activities are revenue receipts for example-receipts from the sale of goods or services, interest income, etc. Revenue and capital receipts are recognized on an accrual basis as soon as the right of receipt is established. Revenue receipts should not be equated with actual cash receipts. Revenue receipts are credited to the Profit and Loss Account.

What are the features of Revenue Receipts?

  1. Receipts that are obtained in course of normal business activities are revenue receipts
  2. For example-receipts from the sale of goods or services, interest income, etc.
  3. Revenue receipts are credited to the Profit and Loss Account.
  4. Can be saved for creating reserve funds
  5. Available for distribution of profits
  6. And the revenue receipts are received in the short term
  7. if it is referable to the circulating asset it is a revenue receipt.
  8. the profit earned by an automobile dealer, dealing in cars, by selling a car is his revenue receipt.

What are the examples of Revenue receipts?

These are the examples of Revenue receipts

  1. Interest earned
  2. Rent received
  3. Discounts received from suppliers, vendors, or creditors
  4. Dividend received
  5. The sale of any kind of an inventory
  6. Income from services rendered
  7. Different types of discounts Received from the suppliers
  8. Sale of scrap
  9. Interest received.
  10. Rent received
  11. Bad debts recovered(if any)
  12. Commission received
  13. Revenue earned by the sale of scrap material or waste etc
  14. Money received for services provided to customers

The followings are some important examples of Revenue receipt decided by courts

  1. A passenger is injured in a railway accident and is temporarily disabled thus losing income for a short period. Any receipt as compensation shall be a revenue receipt.
  2. Lump-sum royalty is received in advance.
  3. A “Pugree” was received by the owner of the house property from the tenant.
  4. But if the passenger is permanently disabled, the compensation received would have been a capital receipt
  5. Damages awarded by a court to a company for breach of contract by another company.

How do you identify Revenue receipts?

We can identify the Revenue receipt through the example-

Example 1-Received 100000 as subsidy from the state government.

Solution-It is revenue receipt because it is received in the normal course of business and reduces the cost of production of the goods produced by the firm.

Example 2-Sale of goods for Rs. 20000 in cash.

Solution-Sale proceeds from the sale of goods 20,000 Rs. is a revenue receipt as it is a receipt in the course of normal business activities of the enterprise.

Example 3-Interest received on investment of Rs. 5000.

Solution-Interest on investments of Rs 5,000 is a revenue receipt as the use of enterprise resources yielding interest is revenue.

How do you calculate Revenue receipts?

you can understand how you can calculate revenue receipt through the given examples

For example, Mr. Ram has a trading business of readymade garments in a Gandhi Nagar market. He purchased 10000 pieces @ 200 each on 05 Jan 22. and after some time, He sold 5000 pieces @ 300 each on 15 Jan 2022. So How much profit does he gets from the sale?

Solution– Here, It is a Revenue receipt for the trader Mr. Ram because of receipt from sale in the course of normal business activities of the enterprise.

Revenue receipt/ Profit = Sale Value- Purchase Cost

=5000*300 – 5000*200

=1500000-1000000

=500000 (revenue receipt / profit)

What are the types of Revenue receipts?

The money received by a business through normal business operations is known as revenue receipt. These revenue receipts are non-redeemable and can be classified into two categories, namely:

  • tax revenue
  • and non-tax revenue.

1 Tax Revenue

  1. Direct tax
  2. and indirect tax

2 Non-Tax Revenue

  1. Interest
  2. Fees
  3. fines and penalties
  4. License fees
  5. Fees for services
  6. Dividends
  7. profits

How Revenue receipt is different from the capital receipt?

You can know how it is different from capital receipt throughout the given table

NoRevenue ReceiptsCapital Receipts
1Receipts that are obtained in course of normal business activities are revenue receiptsReceipts that are not revenue in nature are capital receipts
2For example-receipts from the sale of goods or services, interest income, etc.For examples-receipts from the sale of fixed assets or investments, secured or unsecured loans, owners’ contributions, etc.
3Revenue receipts are credited to the Profit and Loss Account.Capital receipts are not directly credited to the Profit and Loss Account.
4Can be saved for creating reserve fundsCannot save it for creating reserve funds
5Available for distribution of profitsNot available for distribution of profits
6if it is referable to circulating asset it is revenue receipt.If a receipt is referable to a fixed asset, it is a capital receipt
7the profit earned by an automobile dealer, dealing in cars, by selling a car is his revenue receipt.Profit on the sale of a motor car used in business by an assessee is a capital receipt
8And the revenue receipts are received in the short termThe capital receipts are received in the long term

Are Revenue receipts taxable?

According to the general rule under the Income-tax Act, all revenue receipts are taxable unless a receipt is specifically exempted and all capital receipts are exempt from taxation unless there is a provision to tax them. Gifts and loans etc are in the nature of capital receipts not attracting tax.

faqs on Revenue Receipt

What is the definition of Revenue receipt?

Revenue receipts are money earned by a business through its day-to-day operational activities. These are recurring in nature and directly affect the profit and loss of the business. Thus, the disclosure of revenue receipt is required to be made in the income statement of the company or organization.

What is Revenue receipt as per income tax?

Revenue receipts are defined as those receipts that neither create any liability nor cause any reduction in the assets of the government. They are regular and recurring in nature and the government receives them in the normal course of activities.

Which receipt is called a Revenue receipt?

These are the Revenue receipt in nature

  1. Interest earned
  2. Rent received
  3. Discounts received from suppliers, vendors, or creditors
  4. Dividend received
  5. Bad debts recovered(if any)
  6. Commission received
  7. Revenue earned by the sale of scrap material or waste etc
  8. Money received for services provided to customers

Which one is a Revenue receipt?

  1. 10,000 spent as traveling expenses of the directors on trips abroad for the purchase of capital assets.
  2. Amount received from Trade receivables during the year.
  3. Amount spent on the demolition of building to construct a bigger building on the same site.
  4. Insurance claim received on account of machinery damaged by fire.

Answers are

  1. Capital expenditure.
  2. Revenue receipt.
  3. Capital expenditure.
  4. Capital receipt.

Find the nature of the Receipt

Q1-Receipt from the sale of Rs 10000 in cash is
(a) Capital receipt
(b) Revenue receipt
(c) Capital expenditures

Ans. (b) Revenue receipt

Q2-Rent and interest received in the business is
(a) Capital receipt
(b) Revenue receipt
(c) Capital expenditures

Ans. (b) Revenue receipt

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