Business Investing

WHAT IS BUSINESS INVESTMENT ACCOUNTING?

Investment Definition: Business Investment Accounting Explained.

Before anyone makes a decision to invest in business, they should be able to answer the question, “What does it mean to invest?” Investments are assets or items that are purchased with the goal of creating more income or appreciating in value. They are a purchase made not for the present but to be useful in the future. An investment is always purchased with the hope that its future payoff will exceed its original cost.

Business investment specifically refers to accounting assets that are purchased in the hope of making money on their own, as opposed to something like a delivery car for a restaurant. The difference is that a delivery car will help make the business more profitable, but the restaurateur is unlikely to be paid back for the vehicle itself.

What Are the Types of Corporate Investment?

There are three main types of investment categories in accounting.

Ownership Investments: Referring largely to things like stocks, real estate, precious objects, and business investments, ownership investments refer to investments in which the buyer actually owns the asset. This is the most common type of investment. Accounting professionals can help to ensure that these investments are still producing income or appreciating.

Lending Investments: As a lending investor, you serve as a banker. You’re essentially buying debt in the hope and expectation that that debt will be repaid. Bonds, savings accounts, and Treasury inflation-protected securities (or TIPS) are all lending investments.

Cash Equivalents: These investments are “as good as cash.” It’s very simple to liquidate them, or convert them back to cash, if necessary. Money-market funds are cash equivalents.

A good portfolio should have a few of all three of these types of investments. While building a portfolio, an investor might also hear about mutual funds, which pool money from multiple investors together to make larger investments. An exchange-traded fund, or ETF, is similar to that concept but is traded like stock.