Classification of Expenditures and Receipts

Capital and revenue expenditures and receipts are two types of transactions that occur in the business world. The classification of these transactions is critical in determining the financial position and performance of a company. The following is an explanation of the classification of expenditures and receipts.

Capital Receipts vs. Revenue Receipts

Capital receipts are non-recurring transactions that do not affect the profitability of a company. They are primarily related to the acquisition or disposal of capital assets. For example, the sale of property, plant, and equipment (PP&E) is a capital receipt. Additionally, any capital contributions from shareholders or long-term loans are considered capital receipts.

Revenue receipts, on the other hand, are recurring transactions that affect the profitability of a company. They are derived from the ordinary course of business and include sales revenue, interest income, and rent received. Government grants, subsidies, and donations are also considered revenue receipts.

Subsidy Received by a Manufacturing Concern

The subsidy of Rs. 40,000 received from the government by a manufacturing concern is a revenue receipt. This is because subsidies are given by the government to support the operations of a company, and they do not affect the capital structure of the company. The subsidy is not related to the acquisition or disposal of capital assets, nor is it a contribution from shareholders or a long-term loan.

Conclusion

In conclusion, the classification of expenditures and receipts is crucial in determining the financial position and performance of a company. Capital receipts and expenditures are related to the acquisition or disposal of capital assets, while revenue receipts and expenditures are related to the ordinary course of business. The subsidy of Rs. 40,000 received from the government by a manufacturing concern is a revenue receipt.

It is correct because it is received due to normal activity of business and it neither create a liability nor reduce a asset