Introduction Nature of Investment Accounting

Investment accounting is the management and analysis of accounts actively involved in investments. Working in this profession allows you to make business investment decisions and choose stocks, bonds and debts that are stable and profitable. Thoroughly exploring the answer to, ‘What is investment accounting?’ can help you learn more about the profession and help you determine whether it is the right career choice. In this article, we discuss what investment accounting is, explore what an investment accountant does, understand their average salary and skills and discover steps to become an investment accountant.

When researching various accounting careers, you might wonder, ‘What is investment accounting?’. Investment accounting is a specialization in the accounting field that analyses and manages investments accounts. While some manage their investments, people with large investment portfolios hire certified investment accountants. Investment accounting involves managing bonds, stocks and other investments for brokerage firms and portfolio managers. Professionals working in investment accounting field are investment accountants who monitor clients’ investments, manage debt investments and keep track of any third-party investment activities.

Common job duties for an investment accountant:

• Monitor client investments: These professionals monitor and maintain the investment of clients and businesses. They understand various rules about managing investments in a particular region.
• Manage debt investment: Debt investment is another key responsibility of investment accountants. When companies or individual wants to invest in stable and predictable options, these professionals prefer debt investments over stocks.
• Track third-party activities: A part of an investment accountant’s job role involves tracking their clients’ investments. Tracking these activities is essential because it affects a client’s financial standing.
• Prepare tax reports: Another critical job duty of an investment accountant is creating tax reports that give details about the company’s investment accounts. So, it is essential to maintain accurate records.
• Analyze investment activities: Employers expect these professionals to analyse the company’s investment activities and make proper recommendations to management personnel.
• Coordinate with others: Investment accountants coordinate and manage every aspect of the general ledger accounting. These professionals interact with other accountants and portfolio managers to manage ledger accounting.
• Ensure compliance: Many organisations rely on these accountants to process taxes and reports that comply with relevant regulations.

Employers expect these professionals who are knowledgeable in bonds, stocks and precious metals like shares and gold, among other forms of investment. It is essential to keep track of the constantly changing investment field to perform their job duties.

If the investor intends to hold an investment to its maturity date (which effectively limits this accounting method to debt instruments) and has the ability to do so, the investment is classified as held to maturity. This investment is initially recorded at cost, with amortization adjustments thereafter to reflect any premium or discount at which it was purchased. The investment may also be written down to reflect any permanent impairments. There is no ongoing adjustment to market value for this type of investment. This approach cannot be applied to equity instruments, since they have no maturity date.

Trading Security

If the investor intends to sell its investment in the short-term for a profit, the investment is classified as a trading security. This investment is initially recorded at cost. At the end of each subsequent accounting period, adjust the recorded investment to its fair value as of the end of the period. Any unrealized holding gains and losses are to be recorded in operating income. This investment can be either a debt or equity instrument.

Available for Sale

An available for sale investment cannot be categorized as a held to maturity or trading security. This investment is initially recorded at cost. At the end of each subsequent accounting period, adjust the recorded investment to its fair value as of the end of the period. Any unrealized holding gains and losses are to be recorded in other comprehensive income until they have been sold.

Equity Method

If the investor has significant operating or financial control over the investee (generally considered being at least a 20% interest), the equity method should be used. This investment is initially recorded at cost. In subsequent periods, the investor recognizes its share of the profits and losses of the investee, after intra-entity profits and losses have been deducted. Also, if the investee issues dividends to the investor, the dividends are deducted from the investor’s investment in the investee.

Realized Gains and Losses

An important concept in the accounting for investments is whether a gain or loss has been realized. A realized gain is achieved by the sale of an investment, as is a realized loss. Conversely, an unrealized gain or loss is associated with a change in the fair value of an investment that is still owned by the investor.

There are other circumstances than the outright sale of an investment that are considered realized losses. When this happens, a realized loss is recognized in the income statement and the carrying amount of the investment is written down by a corresponding amount. For example, when there is a permanent loss on a held security, the entire amount of the loss is considered a realized loss, and is written off. A permanent loss is typically related to the bankruptcy or liquidity problems of an investee.

An unrealized gain or loss is not subject to immediate taxation. This gain or loss is only recognized for tax purposes when it is realized through the sale of the underlying security. This means that there may be a difference between the tax basis of securities and their carrying amount in the accounting records of the investor, which is considered a temporary difference.