According to the American Accounting Association, Committee on Accounting Concepts and Standards, "Revenue is the monopoly expression of the aggregate of products or services, transferred by an enterprise to its customers during a period of time."
Capital and revenue receives
Capital receipts of business enterprise of capital contributed by partner or by the shareholders; Loans; Sale proceeds of any fixed asset, etc. In case of clubs and associations, receipts on account of life subscriptions; Entry fee; Government grants; Legacies and endowments are capital receipts. Revenue receipts of a business are, cash from sales, discount received, commission, interest on investment etc. In case of club etc. Annual subscriptions; Sale of golf clubs and balls; Receptions arising out of the awards being given to others for use on charges.
Revenue received are valued in the revenue account (trading and profit and loss account) while the capital receipts are valued in the balance sheet.
Whether a particular receipt is capital or revenue? The following guidelines may be stated:
– Nature of receipts is to be determined by its character in the hands of the person receiving it not by the source from which payment was made eg, Payment of interest out of capital, by a company still under construction is capital expenditure for the company but Receivable receipt in the hands of the person receiving it.
– In case of a single transaction of purchase and sale of property the motive of the owner will decide whether the receipt is capital or redemption eg, A sells shares held by him as investment, it is a capital receipt but if A sells the shares with Speculative motion it would be a revenue receipt.
– A receipt on account of fixed asset is a capital receipt while a receipt on account of current asset is a revenue receipt, eg, sale proceeds of building, plant etc., sentence capital receipt while sale of stock-in-trade is return receipt .
– Where a receipt is in substitution of a source of income it is a capital receipt: but if it is' in substitution of income alone, it is a revenue receipt eg if a railway passenger meets with an accident and dies or is permanently disabled, The compensation received from the railway company is capital receipt because this receipt is in substitution of source of income ie his life but if he is rendered only temporarily disabled the receipt will be revenue one, as it is in substitution of income alone ie loss of earnings During the period of disablement.
Where a sum is received for the surrender of certain right, it is capital receipt but where the sum received is in the nature of compensation for loss of future profits it is a revenue receipt eg, A, the lease holder of fire-clay field and Manufacturer of fire-clay goods, was prevented by the railway company for working on the field adjacent to the railway lines. Amount paid by the railway company to A is capital receipt, because it is the receipt in lieu of his right to work upon the clay field.