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.