What is the Difference Between Capital Reserves and Revenue Reserves?
🆚 Go to Comparative Table 🆚The main difference between capital reserves and revenue reserves lies in their purpose, source, and tenure. Here are the key differences between the two:
Capital Reserves:
- Source: Created from capital profits, such as profits from the sale of fixed assets or shares.
- Purpose: Used for long-term projects, expansion, and diversification of the company.
- Tenure: Cannot be used for dividend distribution.
- Example: Capital reserve is created by the sale of fixed assets.
Revenue Reserves:
- Source: Created from revenue profits, which are earned from the daily operations of the company.
- Purpose: Generally used for short-term financial needs, such as meeting unforeseen events or reinvesting in the company.
- Tenure: Can be used for dividend distribution.
- Example: Revenue reserve is created from retained earnings.
In summary, capital reserves are used to finance long-term projects and cannot be distributed as dividends, while revenue reserves are used for short-term financial needs and can be distributed as dividends.
Comparative Table: Capital Reserves vs Revenue Reserves
Here is a table comparing the differences between capital reserves and revenue reserves:
Feature | Capital Reserves | Revenue Reserves |
---|---|---|
Source | Created from capital profits, such as profit on the sale of shares or fixed assets. | Created from revenue profits, which are earned from the company's core business operations. |
Purpose | Used for non-trading activities, such as financing long-term projects, business expansion, or to write off capital expenses. | Used for trading activities, such as meeting unforeseen contingencies, improvements, or reinvestment in the company. |
Tenure | Long-term in nature. | Short-term in nature. |
Dividend Payout | Cannot be distributed as dividends. | Can be used for dividend payouts. |
Accounting | Shown on the liability side of the balance sheet under the head 'Reserve and Surplus'. | Recorded in the profit and loss appropriation account. |
Capital reserves are created from capital profits, such as those earned from the sale of fixed assets or shares, and are used for non-trading activities like financing long-term projects or business expansion. On the other hand, revenue reserves are created from revenue profits, which are earned from the company's core business operations, and are used for trading activities, such as meeting unforeseen contingencies or reinvestment in the company.
- Capital Reserve vs Reserve Capital
- Retained Earnings vs Reserves
- Capital Budget vs Revenue Budget
- Capital Expenditure vs Revenue Expenditure
- Income vs Revenue
- Profit vs Revenue
- Earnings vs Revenue
- Reserve vs Provision
- Sales vs Revenue
- Revenue vs Turnover
- Fiscal Deficit vs Revenue Deficit
- Equity vs Capital
- Capital vs Asset
- Money Market vs Capital Market
- Deferred Revenue vs Recognized Revenue
- Fixed Capital vs Working Capital
- Capital Gains vs Income
- Guard vs Reserve
- Operating Lease vs Capital Lease