When a business firm invests some money outside of its firm with an objective of getting benefits out of it then we call it investments. It simply clarifies that the investment in the firm as capital is different from the investment outside.
Now, question arises why the investment is done outside? Answer is very clear. If some surplus funds are available with the business firm for a short period or long period then only these funds are invested in some more profitable sources.
Investments may in form of shares, debentures, mutual funds, bonds, fixed deposits, lands or properties etc. But there is a most important point that is risk and return on investment. The business firm must keep in mind before any investment that the money is safe. The point of easy liquidity also must be considered because no one knows when the money may be required for business needs. The income out of investment is also a point, to be considered before making any investment.
Treatment of Investments in Final Accounts
Investments are shown in assets side of balance sheet.
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