Thursday, February 23, 2012

What are Short Term Investments?

What are short-term investments on an accounting balance sheet?

Short-terms investments are generally very liquid marketable equity securities and/or debt. These will all be classified as a current asset on an accounting balance sheet by a corporate accountant.

If there interest paid on the bonds being held differs from the current market rate for comparable debt, the bond premiums and discounts are not recorded on the balance sheet because their short-term nature causes these amounts to be negligible. This is because the bonds are not held long enough for this to be a factor for the company.

However, the cost of equity investments is required to include commissions as part of the balance sheet. The FASB has rules requiring the lower cost or market cost rule to be applied to equity securities, which can be marked down to market cost and back up, but never above actual cost. The cost of commissions is an integral part to the over cost of equity securities.

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