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A capital investment is the acquisition of a long-lasting fixed asset that benefits a business but is not used to cover operating costs. It can be anything from equipment to an interest-bearing account or even money kept in a piggy bank. The primary characteristic is that it is not required for daily expenses.
A capital investment is the acquisition of a fixed asset that is expected to have a long useful life before it needs to be replaced or repaired. Two of the most easily recognizable examples of these types of investments are land and buildings. However, a capital investment is made any time a business purchases assets that will benefit the operation of the business, but will not be used to cover the operating costs of the business.
Of course, a capital investment does not have to be an asset along the lines of equipment or land. It can be something as simple as an amount of money that is set aside in some type of interest-bearing account. Since the resource is not being used to cover business expenses, capital assets of this type can be used freely to generate additional income by accruing interest. Therefore, it would be appropriate to consider an initial amount of money used to open a standard savings account as a capital asset, with the fact that each year an interest rate will be earned on the principal that converts the asset into an investment. capital .
Many people think that to qualify as a capital investment identification, the asset must be an item with a great initial value. In fact, fixed assets can have any kind of inherent value. The primary characteristic of a capital investment is not achieving some basic present value, but rather the fact that the item is not required for the normal expenses associated with daily living or business operation. Even the component of earning some type of interest is not necessarily a qualification to be understood as this type of investment. Money kept in a piggy bank or under a mattress would still qualify as a capital investment, since the money is (a) expected to have a long useful life, and (b) is not required to maintain the daily operations of a business or home.
Smart Asset.
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