What is the difference between investment and capital?Capital is source of funds, while investment is deployment of funds. Capital shown in the liabilities side of the balance sheet, but...

What is the difference between investment and capital?
Capital is source of funds, while investment is deployment 
of funds. Capital shown in the liabilities side of the 
balance sheet, but Investment shown the assest side of the 
balance sheet. Capital account is credit balance of the 
books of account, while investment is debit balance of 
books of account. Capital account represent the paid up 
capital of share, reserve and surplus.

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michael-niagara's profile pic

Michael Ugulini | (Level 3) Educator

Posted on

Looking at this from an accounting perspective, which I’m assuming you mean as this is listed under the ‘Business’ topic and you speak of balance sheets, we can see distinct differences between investment and capital as follows:

Investment

Investment is short-term and long-term invests to increase the wealth of an organization and put its finances and other resources to work. In this way, these resources, financial and otherwise, produce for the organization, instead of sitting in a basic cash account and possibly earning significantly less interest.

Investing includes the purchasing and selling of resources. These resources can be used by a company to sell its products and/or services. A company’s finances fund the assets and the expectation is that these assets will produce benefits for the company down the road.

As the textbook ‘Fundamental Accounting Principles’ (Ninth Canadian Edition; Larson, Wild, Chiappetta, Nelson, Carroll, Zin; McGraw-Hill Ryerson – 1999) states, “Investing activities include the (a) purchase and sale of long-term assets, (b) the purchase and sale of short-term investments that are not cash equivalents, and (c) lending and collecting on loans other than those made by a financial institution.”

Think of investing on a personal plane. You invest for yourself and your family to increase your resources, especially your cash position. You may invest in stocks, government bonds (provincial, state, federal), GIC’s (Guaranteed Investment Certificates), corporate bonds and the like. You, like businesses, are looking to also increase wealth - the wealth of you and your family.

Capital

Capital is indeed the source of funds as noted above. You need capital to engage in investing activities. From an accounting perspective, an organization’s capital structure is its sources of financing. You can learn a lot about the solvency of an entity by looking at its capital structure. This includes equity capital and short-term financing. Equity is an owner’s or a group of owners claim on the business’s assets.

As you consider Investments that we talked about above, recognize that owner’s equity grows by and an owner’s investments and revenues. Now, on the left side of the balance sheet capital is also cash, as an example, a financial asset.  Moreover, capital assets of a company are looked at by lenders as security for loans they make to a business.

On an organizations balance sheet capital assets include plant & equipment, factories, buildings, as well as land which are all long-term tangible assets. Capital assets additionally include intangible assets. Intangible assets include copyrights, patents, goodwill, trade names and trade names. These assets do not have a physical presence, but they are used to sell products and services.

The thing with capital assets is that a company expects to realize benefits from them for greater than one period. Also consider capital expenditures – the additional cost of capital assets.

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litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

Yes, what you have is mostly accurate.  Capital is what you have at any point, and investments are not easily accessible.  However even though you are spending with investments, you are spending in order to get a return.  You are going to be earning a return on that investment, and once you cash out the investment you should have more capital.

faizashahaid's profile pic

faizashahaid | Student, Undergraduate | (Level 1) Honors

Posted on

THANKS FOR HELPING

nikasho0100's profile pic

nikasho0100 | Student, Grade 12 | (Level 1) Salutatorian

Posted on

Capital is the man made assets used in the production process this includes offices, factories. machinery. railway ect.

Investment is the spending on capital goods or the expansion of capital goods. This helps to increase a nations stock capital as well. Eg:- Installing new software, extension of plants and machinery ect. There are two types of investment known as GROSS INVESTMENT and NET INVESTMENT. Gross investment is the investment itself but Net Investment is the value of extra capital goods produced. This is equal to Gross investment minus depreciation.

 

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