Trading securities are financial instruments that are bought and held with the intention of selling them in the short term to make a profit. These securities are classified into three categories: held-to-maturity, available-for-sale, and trading securities. In this article, we will focus on the classification of trading securities.
Trading securities are financial assets that are bought and held with the intention of selling them in the short term to make a profit. These securities are actively traded in the market and their value is constantly changing. The classification of trading securities is important because it affects how they are reported on a company’s financial statements.
The first category of trading securities is held-to-maturity. These are debt securities that a company intends to hold until maturity. They are reported at amortized cost on the balance sheet and any changes in their value are not recognized in the income statement. This means that any gains or losses on these securities are only realized when they are sold.
The second category of trading securities is available-for-sale. These are securities that a company holds with the intention of selling them in the short term, but not necessarily immediately. They are reported at fair value on the balance sheet and any changes in their value are recognized in the income statement. This means that any gains or losses on these securities are immediately realized.
The third category of trading securities is trading securities. These are securities that a company actively trades in the market with the intention of making a profit. They are reported at fair value on the balance sheet and any changes in their value are recognized in the income statement. This means that any gains or losses on these securities are immediately realized.
In conclusion, the classification of trading securities is important because it affects how they are reported on a company’s financial statements. Held-to-maturity securities are reported at amortized cost, available-for-sale securities are reported at fair value with changes recognized in the income statement, and trading securities are reported at fair value with changes recognized in the income statement. Understanding the classification of trading securities is essential for investors and financial analysts to make informed decisions.
