Revenue receipt in accounting
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.
Contents of this post
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.
These are the examples of Revenue receipts
The followings are some important examples of Revenue receipt decided by courts
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.
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)
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:
1 Tax Revenue
2 Non-Tax Revenue
You can know how it is different from capital receipt throughout the given table
No | Revenue Receipts | Capital Receipts |
---|---|---|
1 | Receipts that are obtained in course of normal business activities are revenue receipts | Receipts that are not revenue in nature are capital receipts |
2 | For 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. |
3 | Revenue receipts are credited to the Profit and Loss Account. | Capital receipts are not directly credited to the Profit and Loss Account. |
4 | Can be saved for creating reserve funds | Cannot save it for creating reserve funds |
5 | Available for distribution of profits | Not available for distribution of profits |
6 | if it is referable to circulating asset it is revenue receipt. | If a receipt is referable to a fixed asset, it is a capital receipt |
7 | the 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 |
8 | And the revenue receipts are received in the short term | The capital receipts are received in the long term |
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.
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.
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.
These are the Revenue receipt in nature
Answers are
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
An Accountant, GSTP, GST blogger, Website Creator, SEO Builder & Co-founder of the website https://gstportalindia.in for the help of GST Taxpayers of India. Having a perfect accounting experience of more than 10 years in a Private Ltd Company.
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