Financial investments in assets for a period of no more than a year are called short-term. These are mainly investments in highly liquid securities - bonds, stocks, as well as certificates of deposit.
Types of financial investments
The financial investment account (account 58) includes the following sub-accounts:
- shares and shares (contributions to the authorized capital of other companies and the purchase of shares in JSC);
- debt securities;
- loans granted, contributions under a simple partnership agreement (including in subsidiaries), as well as other investments (rights of claim to receivables, short-term securities, etc.).
All financial investments can be classified not only by type, but also by the urgency of the investment. In the latter case, a distinction is made between long-term and short-term investments. This division is necessary to assess the book value of investments.
Long-term investments include investments with a return (use) period of more than a year. Usually they include investments in the authorized capital of other companies, loans, purchase of shares and bonds.
Short-term investments include investments in assets with a term of less than a year. These are, for example, investments in securities that can be easily resold for additional income or loans that were issued for less than a year. Moreover, the number of short-term investments in securities includes not only those that are planned to be paid off during the year, but also those for which it is expected to receive income in the current period.
The organization determines the term of use of investments independently based on the investment goals, unless otherwise provided in the accompanying documents (contracts, bonds with an agreed maturity date, etc.).
Types and purposes of short-term financial investments
Short-term financial investments are carried out in order to obtain profit from the sale of securities on the stock exchange, as well as to efficiently roll over temporarily free money. Before making such investments, a preliminary assessment of their economic feasibility is carried out.
With the help of this category of assets, the liquidity of organizations is assessed. Short-term investments, along with money, are highly liquid assets.
As a rule, the share of financial investments in the structure of assets of Russian companies is small. This is due to the shortage of working capital for investment.
The most common type of short-term financial investments is the purchase of securities, as well as short-term loans to other organizations. There is also a category of other short-term investments. These include advances issued, product costs and other expenses actually paid but attributable to future periods (for example, an advance on rent). Short-term financial investments can be carried out in the form of purchasing certificates of deposit from a bank or a third party.
Financial investments do not include the company's own shares (repurchased by the company from shareholders); promissory notes issued by the buyer for the goods sold (services rendered); investments in real estate, as well as in fixed assets, intangible assets or stocks.
