Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions

Capital Receipts and Revenue Receipts: Meaning and Differences

Updated 10 October 2026 · Fact-checked

A **capital receipt** is money received from owners, lenders or the sale of fixed assets. It changes capital, liabilities or assets and is not business income. A **revenue receipt** comes from the normal running of the business, such as sales, interest or commission, and is credited to the Profit and Loss Account.

Understand Capital and Revenue Receipts

Every rupee a business receives is not income. Some receipts add to the money put in the business or reduce its assets. Others are earned by running the business. Accounting separates the two so that profit is measured correctly.

A capital receipt is a receipt that is not earned from day-to-day operations. It comes from the owner bringing in capital, from raising a loan, or from selling a fixed asset. It is generally non-recurring in nature. It either increases a liability or capital, or reduces an asset. It is shown in the Balance Sheet.

A revenue receipt is a receipt earned from the normal activities of the business. Sale of goods, service fees, interest on investments, rent received, commission and discount received are examples. They are recurring in nature. They do not create a liability and do not alter the capital structure of the business. They are shown on the credit side of the Trading or Profit and Loss Account.

The test is simple. Ask: did this money come from running the business, or from a change in the capital structure or the assets? If it came from operations, it is revenue. If it came from owners, lenders or sale of a fixed asset, it is capital.

An important point: a receipt of the same kind can be capital for one business and revenue for another. Sale of a machine is a capital receipt for a factory that uses it. It is a revenue receipt for a machine dealer, because machines are the dealer's stock-in-trade. In the same way, sale of investments is capital only if they are held as a fixed asset. For a dealer in securities it is revenue.

Key formulas to remember

Capital receipt test: Owner's capital, loans taken, sale of fixed assets, sale of investments held as fixed assets → Capital receipt; Shown in the Balance Sheet. Any profit on sale of a fixed asset is a capital profit, not trading income. Sale of investments is capital only if they are held as a fixed asset. For a dealer in securities it is revenue.
Revenue receipt test: Sales, service income, interest, rent, commission, discount received from normal operations → Revenue receipt; Credited to the Trading or Profit and Loss Account.
Dealer rule: Item sold in the ordinary course of business = Revenue receipt; Nature depends on the business. Look at what the business does. Revenue receipts do not create a liability or change the capital structure.

How to solve Capital and Revenue Receipts questions

Use this method for any question that asks you to classify a receipt or find its effect on profit.

1Read the receipt and identify who paid it and why.
2Identify the nature of the business. Check whether the item is stock-in-trade or a fixed asset for that business.
3Ask if the money comes from normal operations. If yes, it is a revenue receipt.
4Ask if it comes from the owner, a lender, or the sale of a fixed asset. If yes, it is a capital receipt.
5Check whether it creates a liability or changes capital. Capital receipts do; revenue receipts do not.
6Decide the placement: Balance Sheet for capital, Profit and Loss Account for revenue.
7Eliminate options that mix the two types, then pick the correct one.

Quickest way: Operations or Funding test

When to use it: Use it for MCQs that ask you to pick the capital receipt or revenue receipt from a list of four items.

Scan each option for the words capital, loan, borrowed, sale of machinery, building or furniture. These point to capital receipts.
Scan for sales, interest, rent, commission, discount received. These point to revenue receipts.
Check the business type in the question stem before finalising.
Mark the answer and move on. Do not spend more than a minute.

Common mistakes in Capital and Revenue Receipts

Treating a loan received as income.
Money enters the bank, so it feels like earnings.
Fix: A loan creates a liability that must be repaid. It is a capital receipt and goes to the Balance Sheet.
Treating sale proceeds of a fixed asset as revenue.
The word sale makes students think of sales income.
Fix: Sale of a fixed asset is a capital receipt unless the business deals in that asset.
Ignoring the type of business.
Students memorise fixed lists of examples.
Fix: Always ask whether the item is stock-in-trade for that business. A car sold by a car dealer is revenue. Sale of investments by a dealer in securities is also revenue.
Calling interest received a capital receipt.
Interest is linked with loans and investments.
Fix: Interest earned is income from the use of money. It is a revenue receipt.
Treating capital brought in by the owner as revenue.
It increases cash like a sale does.
Fix: Capital introduced is a capital receipt. It increases the owner's capital and not profit.

Worked examples

Example 1

Which of the following is a capital receipt for a readymade garment manufacturer? (A) Sale of garments ₹2,00,000 (B) Interest on bank deposit ₹5,000 (C) Sale of old machinery ₹60,000 (D) Commission received ₹8,000

Show the solution

The business makes garments. Garments are stock-in-trade.
Option A is sales from normal operations, so it is revenue.
Option B is interest income, so it is revenue.
Option D is commission income, so it is revenue.
Option C is sale of a fixed asset used in production, so it is capital.

Answer: (C) Sale of old machinery ₹60,000

Example 2

Mehta Traders received ₹3,00,000 from sale of goods, ₹50,000 as a bank loan, ₹10,000 as interest on investments and ₹40,000 from sale of old furniture. Find the total revenue receipts.

Show the solution

Sale of goods ₹3,00,000 is a revenue receipt.
Bank loan ₹50,000 is a capital receipt, so exclude it.
Interest on investments ₹10,000 is a revenue receipt.
Sale of old furniture ₹40,000 is a capital receipt, so exclude it.
Total revenue receipts = ₹3,00,000 + ₹10,000 = ₹3,10,000.

Answer: ₹3,10,000

Exam tips

Read the business type in the question stem first. It decides whether the item is stock-in-trade.
If two options look revenue-like, check for a loan, owner's capital or fixed asset sale hidden in the wording.
Questions often ask for totals. Classify each item first, then add only the type asked for.
Remember where each goes: capital receipts to the Balance Sheet, revenue receipts to the Profit and Loss Account.

Practice questions from Capital and Revenue Transactions

Capital and Revenue Receipts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Capital and Revenue Receipts: frequently asked questions

What is the main difference between capital and revenue receipts?

A capital receipt comes from owners, lenders or sale of fixed assets and affects the Balance Sheet. A revenue receipt comes from normal business operations and affects profit. Capital receipts are generally non-recurring, while revenue receipts recur.

Is sale of a fixed asset a capital receipt?

Yes, for a business that uses the asset in its operations. The same sale would be a revenue receipt for a business that deals in such assets. Always check the nature of the business.

Is interest received a capital or revenue receipt?

Interest received is a revenue receipt. It is income earned from lending or depositing money. It is credited to the Profit and Loss Account.

Where are capital receipts shown in the accounts?

Capital receipts are shown in the Balance Sheet. They increase capital or liabilities, or reduce assets. They do not enter the Profit and Loss Account as income.