As a business owner, you need to know the different accounting activities under investing and financing. These activities include secured transactions, loans, and equity investments. Keep reading to learn more about these essential concepts and how they can impact your business.
Investing Activities
Investing activities are those that involve the use of a company’s cash to purchase assets or invest in other businesses. The most common investing activities are buying property, plant, and equipment; investing in other companies; and buying equity securities such as stocks and bonds.
Financing Activities
Financing activities are those that involve the raising of capital from investors or lenders. The most common financing activities are issuing debt (such as bonds or loans), selling equity (such as stocks), and taking out lines of credit.
Secured Transactions
A secured transaction is a type of loan that uses collateral to secure the loan. If you default on the loan, the lender can seize the collateral to recoup their losses. Collateral can be in real estate, vehicles, or accounts receivable. Secured transactions usually have lower interest rates than unsecured loans because the lender is at less risk of not being repaid.
Loans
As you might expect, loans are another type of financing activity that businesses often engage in. Loans can be either short-term or long-term, and they can be either secured or unsecured. The lender will determine the terms of a loan, and it is essential to carefully read over and understand all the terms before signing any contracts.
Equity Investments
An equity investment is when an investor provides capital to a business in exchange for an ownership stake in the company. Startup companies often use this financing for seed money to get their business off the ground. Equity investors will often want some say in how the company is run, so it is essential to consider this before taking on any investors.
Conclusion:
Investing and financing activities are essential parts of running a business. As an entrepreneur, it is crucial to be familiar with the different activities under this umbrella, such as secured transactions, loans, and equity investments. Each activity has its pros and cons, so it is essential to carefully consider which option is right for your business before moving forward. Accounting knowledge can help you make informed decisions about how to grow your business best.
If you want an excellent introduction to accounting, I recommend Accounting for Non-Accountants by Wayne Label. It will provide you with the basics and gives the information in plain and unambiguous language. Accounting is too critical to your business to ignore.