Chapter APPA, End of Chapter, Questions, Exercise 1

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Explanation

The amount invested by the business with the motive to earn a return is termed as an investment, which can be classified as short-term and long-term investments. 

 

Short-term investment has a life span of less than a year and can be easily converted into cash and cash equivalents. It comes under the current assets head of the balance sheet. Short-term investments include treasury bills and certificates of deposits. 

 

Long-term investment has a life span of more than one year. It is recorded under the head non-current assets in the balance sheet. Long-term investments are investments in real estate and long-term bonds. 

Verified Answer

Short-term investment can be easily converted into cash and cash equivalents and can be sold within a year, whereas long-term investment is held by a company for more than a year. 

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Page A-29