What are Capital Receipts?

A capital receipt is one that either raises a liability or decreases an asset. For instance, the amount received in the way of additional capital, the amount generated with loans, or the amount generated from the sale of fixed assets.

• A bank loan is a capital receipt because it raises a liability. Similarly, receipts from the sale of machinery are also capital receipts because they decrease an asset.
• Capital Receipts either raise liabilities or decrease assets. It implies that capital receipts have no effect on the company’s profit or loss and are recorded on the balance sheet.

It is important to understand the difference between Capital Receipts and Revenue Receipts. Capital Receipts either raise a liability or decrease an asset and are shown either on the Liability side of the Balance Sheet or the receipt amount is deduced in the Asset side. However, Revenue Receipts neither raise a liability nor decrease an asset and are shown on the credit side of the Trading and Profit & Loss Account.