Investment revenues definition
/What are Investment Revenues?
Investment revenues refers to the income earned from invested funds. Investment revenues are usually considered to be incidental revenues when compared to those generated by the operations of a business, and so are segregated in a separate account. There are four types of investment revenues, which are as follows:
Interest. This is usually the income earned on investments in debt securities, though it may also be derived from money loaned directly to borrowers. Other sources of interest income are certifications of deposit and savings accounts.
Rental income. This is the payments received from tenants when a business owns rental property and rents it out to third parties.
Dividends. This is payments made by corporations to their shareholders, which are paid out on a per-share basis. The amount paid is set by the issuer’s board of directors, and is usually paid either quarterly or annually.
Capital gains. This is any revenue realized from the sale of an asset for more than was originally paid for it. For example, if a business buys a security for $100 and later sells it (net of commissions) for $20, then it has experienced a $20 capital gain.
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Examples of Investment Revenues
Here are four examples of investment revenues:
Dividend income from stock investments. A company or an individual investor who owns shares in a publicly traded company may receive dividend payments. For example, if an investor holds 1,000 shares of Apple Inc. and Apple declares a $1 per share dividend, the investor earns $1,000 in dividend income. This income is recognized as investment revenue because it is derived from stock ownership rather than the core operations of a business. Dividend income is typically taxed at a lower rate than ordinary income, making it an attractive source of passive earnings.
Interest income from bonds. A corporation or investor may purchase corporate or government bonds, which pay periodic interest (coupon payments). Suppose a company invests $100,000 in U.S. Treasury bonds with a 5% annual interest rate. Each year, the company receives $5,000 in interest income, which is classified as investment revenue. This revenue is separate from the company’s core business earnings and is recorded as interest income in the financial statements.
Rental income from investment properties. A business or individual may purchase real estate properties as an investment and generate income by renting them out. For example, if a company owns a commercial office building and leases space to tenants, it earns monthly rental income. If the building generates $50,000 in rent per month, this revenue is categorized as investment revenue rather than operational revenue. The company must also account for expenses like maintenance and property taxes, but the rental income contributes to its overall financial performance.
Capital gains from selling investments. When a company or investor sells an asset (such as stocks, bonds, or real estate) for more than its purchase price, the profit is known as a capital gain. For instance, if an investor buys 1,000 shares of Tesla stock at $200 per share and later sells them at $300 per share, they earn a $100,000 capital gain. This gain is classified as investment revenue because it results from an investment transaction rather than business operations. Capital gains may be short-term or long-term, depending on how long the asset was held before selling.