What is the difference between Revenue Account and Capital Account? Revenue and Capital Account are the two main accounts of the government. Revenue account is an account that includes all the revenue receipts and expenditures of business and government whereas Capital Account includes all the capital receipts and expenditures of the government and business.
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What is the difference between Revenue Account and Capital Account?
1. What is the difference between Revenue
Account and Capital Account?
Revenue and Capital Account are the two main accounts of the government.
Revenue account is an account that includes all the revenue receipts and
expenditures of business and government whereas Capital Account includes all
the capital receipts and expenditures of the government and business.
Let us discuss about Revenue Receipts and Capital Receipts first:
Revenue Receipts: Revenue receipts are those receipts that are received in the
conduct of day-to-day business activities or we can say that they are generated
from operating activities of a business and are recurring in nature. The
Government can take such receipts in the form of Tax or Non-Tax Income. These
receipts have a direct impact on the profits and are shown on the Credit side of
the Profit and Loss Account. To survive for longer period, such receipts are very
useful.
For example: Sales, Interest received, bad debts recovered, Income Tax,
Corporate Tax, GST, etc.
Capital Receipts: Receipts other than revenue receipts are called Capital
Receipts and these receipts do not affect the profit of any business. Such
receipts are non-recurring in nature. They are shown as Liability or Reduction
from the Asset in the Balance Sheet.
Capital receipts can be received from Loans and Borrowings, sale of any
government asset, issue of shares/debentures, etc.
2. Now, let us talk about Revenue Expenditures and Capital Expenditures;
Revenue Expenditures: These are such expenditures which occur in maintaining
any asset and after commencement of the business. Such expenditures can take
place either in developmental or non-developmental works.
For example: Maintenance of various infrastructures, interest payment,
defines, subsidies, grants, salaries, pension, law and order, etc.
This type of expenditure charged fully in the Profit and Loss Account and is
recurring in nature.
Capital Expenditure: Such Expenditures occurs when we buy or create any
asset. These expenditures increase the earning capacity of the business. It may
be incurred before or after the commencement of business and is non-recurring
in nature.
For Example: Expenditure on fresh infrastructure, repayment of loan (Principal
Amount), Loan to state government, etc.
Capital Expenditure is displayed as asset in Balance Sheet.
In short, we can say that if any expenditure increasing capacity, capability,
efficiency and performance of something then it will come under Capital
Expenditure and if not then it falls under Revenue Expenditure.
Let’s take an example to understand this better:
Suppose you buy any vehicle for your business and after sometime you find out
that this vehicle needs to get repaired or maintenance needs to be done so the
expenditure that will take place in this process will be considered as revenue
expenditure because it did not increase its efficiency or capability. It’s just
become normal to use because we have just repaired the damaged item.
Similarly, if we do some expenditure and that can increase the capacity or
capability of any vehicle then that expense would be considered as Capital
expenditure.
Want to know more about Revenue Account and Capital Account. Connect
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on (+1) 718-426-4661 or email us at connect@aggarwalcpa.com