Revenue Receipts | Meaning, Features, Example and Accounting Treatment

What are Revenue Receipts?

A revenue receipt is one that neither raises a liability nor decreases an asset. For instance, the amount obtained from the sale of goods and services.

Key points to remember:

• Revenue Receipts refer to the regular receipts of the business but are generated primarily from the sale of products and services. Rent, discounts, interest, and commissions are all examples of revenue receipts.
• Revenue Receipts generate income for the business. As a result, they are recorded in the credit side of the Profit and Loss Account.

Features of Revenue Receipts

Following are some of the basic features of revenue receipt:

1. Means for Survival: The expectation behind a business starting its operations is to receive money for the products they sell or services they offer. It doesn’t matter if they sell products, offer services, or do both; as long as they receive revenue receipts from the customers, they can survive in the market. 

2. Recurring: Revenue receipts are recurring in nature as they offer business benefits for a short period. Besides, if the revenue receipts of a business do not recur, it won’t be able to perpetuate for a long time.

3. Applicable for Short-term: In simple terms, revenue receipts are the money received by a business for a short period. It means that a business can enjoy the benefits of revenue receipts for one accounting year only.

4. Small Volume: As compared to capital receipts, the volume/amount of revenue receipts is usually small. However, it is not necessary that the volume of revenue is always small. In case a business sells 1 crore units of its product during an accounting year, then its revenue receipts might be more than its capital receipts.

5. Affects Profit/Loss: Revenue receipts of a business have a direct impact on its profit/loss. Simply put, when a business received revenue receipts, then either its profits are increased or its losses are decreased.

Accounting Treatment of Revenue Receipts

As revenue receipts are the income of a company, they are shown on the credit side of the Trading and Profit & Loss Account.

Illustration:

Determine which of the following is a Revenue Receipt:

1. Discount received on purchase of goods.

2. Cash received from debtors amounting 5,000.

3. Machinery sold for 1,00,000. 

4. Amount received from the insurance company on loss of fixed assets.

5. Interest on Drawings received.

Solution:

1. Discount received on the purchase of goods is a Revenue Receipt because it neither creates liability nor decreases the assets of the company. It will be shown on the credit side of the Profit & Loss Account.

2. Cash received from debtors is a Revenue Receipt because it neither creates liability nor decreases the assets of the company. It will be shown on the credit side of the Profit & Loss Account as Bad Debts Recovered.

3. Machinery sold is not a Revenue Receipt because it reduces the assets of the company.

4. Amount received from the insurance company on loss of fixed assets is not a Revenue Receipt because it reduces the assets of the company.

5. Interest on Drawings received is a Revenue Receipt because it neither creates liability nor decreases the assets of the company. It will be shown on the credit side of the Profit & Loss Appropriation Account.