Question

Why are capital receipts shown on the liabilities side of the Balance Sheet and not treated as income?

Answer 1

Dear Student

Capital receipt here means all those receipts which are infused in business by the owner or investors for a specific purpose or for general purpose for growing business .
We know that business owner and business entity are two different thing . Business owners infuse Capital in business to gain profits from business . In other words business entity has to repay all the money infused in business to its owners with profits earned .That means all the money infused by owners is also a liability for business (Internal Liability) .

In NPO when money or fund is received for any specific purpose or subscriptions are received in advance , NPO would be bound to perform the actions for which advance money or fund is received . Hence they are accounted in Liability side till NPO is bound to act .

E.G - An NPO received Rs 1,00,000/- as cricket fund from members for the purpose of cricket fund . Now here this 1,00,000 /- is not the Income for the NPO , NPO has to spend this money on the purpose for which it is received , therefore it is a liability till the purpose is not served .

Regards