Definition
Investment accounting is a mathematical method for checking investments for their economic advantages. With the help of investment accounting, investment decisions are made on a rational basis.
Static and dynamic methods are available for the calculation. Static methods include comparative cost accounting, comparative profit accounting, comparative profitability accounting and amortisation accounting. In these procedures, only one period and no compound interest effects are taken into account. Instead of determining the various payments of a point in time, an average value of all expected sales or costs is formed. As a result, these calculations are not optimal for long-term considerations and should only be used for short-term or approximate considerations.
The dynamic methods include the net present value method, the terminal value method, the internal rate of return method and the annuity method. In contrast to the static methods, the dynamic methods include the time of the payments and disbursements in the calculations. This results in more meaningful calculations, but it is also true that they should not be used alone for decision-making. A mix of objective and subjective evaluations should always be taken so that a correct investment decision can be made.
Bettina Dirks
