Difference Between Capital Reserve And Revenue Reserve

Difference Between Capital Reserve And Revenue Reserve

The main dissimilarities or difference between capital reserve and revenue reserve can be pointed out as follows:

1. Meaning

Capital Reserve: A fund created from capital profit to meet capital loss and to finance new projects.

Revenue Reserve: A reserve created from the profit earned by the business from trading activities.

2. Use

Capital Reserve: Used for long term financing, to meet capital loss etc.

Revenue Reserve: It is used to meet short term business requirements.

3. Dividend

Capital Reserve: This fund cannot be used for the purpose of dividend payment.

Revenue Reserve: This fund can be used to distribute dividend.

4. Reflection Of Efficiency

Capital Reserve: It does not indicate or reflect the efficiency of operational activities of business.

Revenue Reserve: It reflects the efficiency of operational activities of business.

5. Existence

Capital Reserve: There will be no reserve in case of no capital profit.

Revenue Reserve: There may exists revenue reserve in case of loss also.

Also Read:

6. Examples

Capital Reserve: Profit gained from revaluation of assets, sale of assets, sale of debenture and shares etc.

Revenue Reserve: General reserve, sinking fund, retained earning etc.

Capital Reserve Vs Revenue Reserve (Comparison Chart)

Basis For Difference	Capital Reserve	Revenue Reserve
Introduction	Fund created from capital surplus	Fund created by retaining profit of the business
Used For	Long term financing	To fulfill short term financial needs
Can Be Used As Dividend ?	No	Yes
Reflects Efficiency ?	No	Yes
Existence	If there is capital profit	In case of loss also
Examples	Profit earned from sale of assets, revaluation of assets, sale of shares etc.	Retained earning, general reserve, sinking fund etc.

I hope this post is helpful to understand the difference between capital reserve and revenue reserve and to make comparison between them.

Main Differences