Question

Discuss the value involved in classifying the receipts into capital and revenue.​

Answer 1

Answer:

Classification of receipts into capital receipts and revenue receipts is essential for the preparation of financial statements since revenue receipts are shown on the credit side of trading and profit and loss account whereas capital receipts are shown in the balance sheet.

Explanation:

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Answer 2

For the purpose of creating financial statements, receipts must be divided into capital and revenue receipts. Revenue receipts are displayed on the credit side of the Trading and Profit and Loss Account, whilst capital receipts are displayed on the Balance Sheet.

Capital and Revenue:

• When anything affects a firm over the course of more than a year, it is referred to as a capital item.
• When something affects a business only temporarily, it is referred to as a revenue item.
• Real assets are called capital goods and are used by businesses to produce the goods and services that consumers utilise on a daily basis.
• Buildings, machinery, equipment, vehicles, and tools are examples of capital goods.
• A company's finished products are made with the help of capital goods.
• These are not finished things, rather they are inputs used by a company to produce finished goods.
• Items with a short-term impact on business are revenue items (normally less than one year).
• Businesses typically generate revenue profits through the receipt of commissions, discounts, rent payments, etc.
• Revenue losses include those brought on by staff fraud, product theft, revenue losses from sales, and bad debts.

Profits from capital and revenue items are taxed differently from a taxation standpoint. Consequently, it is crucial to categorise the capital and revenue Items.

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