In accordance with American Accounting Affiliation, Committee on Accounting Ideas and Requirements, “Income is the financial expression of the mixture of services or products, transferred by an enterprise to its prospects throughout a time frame.”
Capital and income receipts
Capital receipts of enterprise comprise of capital contributed by associate or by the shareholders; loans ; sale proceeds of any mounted asset, and many others. In case of golf equipment and associations, receipts on account of life subscriptions; entry charge; authorities grants; legacies and endowments are capital receipts. Income receipts of a enterprise are, money from gross sales, low cost acquired, fee, curiosity on funding and many others. In case of membership and many others. annual subscriptions; sale of golf golf equipment and balls; receipts arising out of the premises being given to others to be used on expenses.
Income receipts are handled within the income account (buying and selling and revenue and loss account) whereas the capital receipts are handled within the steadiness sheet.
Whether or not a specific receipt is capital or income? The next tips could also be said:
– Nature of receipts is to be decided by its character within the fingers of the particular person receiving it not by the supply from which fee was made e.g., Cost of curiosity out of capital, by an organization nonetheless underneath building is capital expenditure for the corporate however income receipt within the fingers of the particular person receiving it.
– In case of a single transaction of buy and sale of property the motive of the proprietor will resolve whether or not the receipt is capital or income e.g., A sells shares held by him as funding, it’s a capital receipt but when A sells the shares with speculative motive it will be a income receipt.
– A receipt on account of mounted asset is a capital receipt whereas a receipt on account of present asset is a income receipt, e.g., sale proceeds of constructing, plant and many others., represent capital receipt whereas sale of stock-in-trade is income receipt.
– The place a receipt is in substitution of a supply of revenue it’s a capital receipt: however whether it is’ in substitution of revenue alone, it’s a income receipt e.g. if a railway passenger meets with an accident and dies or is completely disabled, the compensation acquired from the railway firm is capital receipt as a result of this receipt is in substitution of supply of revenue i.e. his life but when he’s rendered solely quickly disabled the receipt will probably be income one, as it’s in substitution of revenue alone i.e. lack of earnings throughout the interval of disablement.
The place a sum is acquired for the give up of sure proper, it’s capital receipt however the place the sum acquired is within the nature of compensation for lack of future income it’s a income receipt e.g., A, the lease holder of fire-clay discipline and producer of fire-clay items, was prevented by the railway firm for engaged on the sphere adjoining to the railway traces. Quantity paid by the railway firm to A is capital receipt, as a result of it’s the receipt in lieu of his proper to work upon the clay discipline.