Difference Between Capital And Investment

Looking
at this from an accounting perspective, which Im assuming you mean as this is listed under the
€˜ 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 companys 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), GICs
(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 organizations 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 owners or a group of owners claim on the
businesss assets.

As you consider Investments that we talked about above,
recognize that owners equity grows by and an owners 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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