What are available for sale securities?

An available-for-sale security is a debt or equity security purchased with the intent of selling before it reaches maturity or holding it for a long period should it not have a maturity date.Accounting standards require that companies classify any investments in debt or equity securities when they are purchased as held-to-maturity, held for trading, or available-for-sale.Changes in value between accounting periods are included in accumulated other comprehensive income in the equity section of the balance sheet.

An accounting term used to describe and classify financial assets is available-for-sale.Held-for-trading and held-to-maturity security are the two other types of financial assets.A ready market price is usually available for nonstrategic securities.

The gains and losses from the security are not reflected in net income, but show up in the other comprehensive income classification until they are sold.The income statement shows net income.The income statement does not reflect the gains and losses on the securities.

Retained earnings on the balance sheet are accumulated over multiple accounting periods.OCI is rolled into "accumulated other comprehensive income" on the balance sheet at the end of the accounting period.Retained earnings are reported in the equity section of the balance sheet.

Unrealized gains and losses for available-for-sale securities are included on the balance sheet.

There are three classifications of securities, available for sale, held for trading, and held-to-maturity securities.In the short term, held-for-trading securities are purchased and held for sale.The purpose is to make a profit from the quick trade.Hold-to-maturity securities are on the other side of the spectrum.These are debt instruments that a firm will hold until their maturity date.A CD with a set maturity date is an example.The catch-all category that falls in the middle is available for sale.The company plans on holding for a while but could also sell some of its securities.

From an accounting perspective, each of these categories is treated differently and affects whether gains or losses appear on the balance sheet or income statement.The accounting for trading securities is similar to that for AFS securities.The investments are recorded at fair value because of their short-term nature.Unhedged gains or losses to the fair market value are recorded in operating income and appear on the income statement for trading securities.

Unhedged gains or losses in other comprehensive income are recorded when the value of available-for-sale securities changes.Some companies include OCI information below the income statement, while others provide a separate schedule detailing what is included in total comprehensive income.

It records a credit to cash and a debit to available-for-sale securities for $100,000 if a company purchases them with cash.If the value of the securities falls to $50,000 by the next reporting period, the investment must be written down.This decrease in value is recorded as a credit of $50,000 to the available-for-sale security and a debit to other comprehensive income.

If the investment goes up in value, it is recorded as an increase in other comprehensive income.The change in value of the security doesn't need to be sold.Gains and losses are not real until the securities are sold.