What is the Difference Between Capital Reserves and Revenue Reserves?

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:

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.