In a business, so many transactions take place in respect of receipts of the cash or cheques against sale of goods or services or as advances or as security deposits etc. These receipts are divided in to two parts i.e. revenue receipts and capital receipts.
Revenue receipts relates to purchase or sale of business items and the capital receipts relate to non-trading items.
So, Capital receipt means any amount that is received in a business firm of non-recurring nature and not related to sale or purchase of trading items
Types of Capital Receipts
- The amount received in respect of shares issued.
- The amount received in respect of debenture issued.
- Amount of loan taken from bank.
- The loan taken from other sources.
- Amount received from sale of fixed assets etc.
Accounting Treatment of Capital Receipts
These receipts are mostly shown in balance sheets in liabilities side but in case of sale of fixed assets and other salable assets the amount of sale proceeds will be adjusted from the respectable assets in asset side of balance sheet.
A point must be remembered here that capital receipts do not relate to income of the business firm. Therefore, the capital receipts are never shown in profit and loss account of the business firm. because If we show these receipts in profit and loss account then it will affect the profit of the firm and will not show the correct and true picture of business affairs.
Basically, these types of transactions occur very occasionally but the accountant must be more careful while allocating the correct account head.
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