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Understanding Investment Securities and How to Account for Them

Posted on August 1, 2016 10:00 am;

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By Rebecca Langdon


There are three different categories of investment securities that you need to be aware of if you are

going to be sitting your CFA, or CPA exam; or perhaps you are reading this article because you have a

general interest in the topic. We will also explain how to account for them.


1) Trading securities

These are securities that a company intends to buy and sell to achieve a short term profit. These

securities should be accounted for at their fair market value. Any gains and losses should be

included on the income statement and will be classified as unrealised holding gains or loses. In

terms of the balance sheet, the counter account will allow for the adjusted short term



2) Held to maturity

This class of securities is held by a company that intends to hold them until they mature. In

terms of accounting treatment, they should be accounted for at cost, which is the purchase

price plus communions and any other fees. Gains and losses are only accounted for upon sale of

the securities.


3) Available for sale

This category is similar to ‘trading securities’ and is generally a default category. The key

difference between available for sale and trading relates to how changes in value are

recognised. As we have already said, for trading securities, any changes in value will be recorded

in the income statement. Whereas for available for sale securities all changes in value are noted

in a special account called “unrealised gain/loss in other comprehensive income.” Therefore the

income statement itself is not affected.


We hope this has served as a useful recap for those of you that are studying already, and for those of

you who may be interested in a finance or accounting qualification, we would welcome you to take a

look at the CPA and CFA course outlines.


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