Explain the basis of classifying government receipts into revenue rece

1.	Explain the basis of classifying government receipts into revenue receipts and capital receipts. Which type of these receipts are borrowings by government and why?
Answer» The basis of categorizing government receipts into revenue receipts and capital receipts : whether or not a receipt leads to (i) creation of liabilities or (ii) reduction of assets. If yes, it is a capital receipt. If no, then it is a revenue receipt. Capital receipts are receipts that either create a liability or reduces asset. Revenue receipts are receipts that neither create any liability nor reduce any asset. Borrowing by government is a capital receipt because it leads to reduction in liability.

Explain the basis of classifying government receipts into revenue receipts and capital receipts. Which type of these receipts are borrowings by government and why?

Answer»

The basis of categorizing government receipts into revenue receipts and capital receipts : whether or not a receipt leads to (i) creation of liabilities or (ii) reduction of assets. If yes, it is a capital receipt. If no, then it is a revenue receipt.

Capital receipts are receipts that either create a liability or reduces asset.
Revenue receipts are receipts that neither create any liability nor reduce any asset.

Borrowing by government is a capital receipt because it leads to reduction in liability.

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Explain the basis of classifying government receipts into revenue receipts and capital receipts. Which type of these receipts are borrowings by government and why?

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