compensation received on loss of source of income is Capital receipt. while compensation received for loss of future profit is Revenue receipt. can anyone pls give example for both n elaborate the same?
Capital receipts are those which are fixed in nature and does not affect the profitibility. e.g. capital intoduction, sale proceeds of fixed assets. They affect the balance sheet by either appearing on the credit side or by reduction in the value of some asset. Revenue receipts are the one which affect the profitibility of the company like day to day incomes. They appear in the credit side of P & L A/c.
The main difference between revenue receipts and capital receipts is that revenue receipts are recurring in nature, which the government can expect to receive year after year, whereas capital receipts are a kind of one-time income.
On the basis of above explanations we can say that Compensation receiveed on Loss of Source of Income i.e. not recurring in nature is CAPITAL RECEIPT and Loss of future profit i.e. recurring in nature is REVENUE receipt.