Understanding the Different Categories of Investment

TLDRLearn about the three classifications of investment: trading securities, held-to-maturity securities, and available-for-sale securities. Each classification triggers different reporting standards. Trading securities are short-term investments subject to fluctuations in value. Held-to-maturity securities are long-term investments held until maturity. Available-for-sale securities are marketable investments with no clear intention to sell.

Key insights

📚There are three classifications of investments: trading securities, held-to-maturity securities, and available-for-sale securities.

⏰Trading securities are short-term investments subject to fluctuations in value.

🔒Held-to-maturity securities are long-term investments held until maturity.

💰Available-for-sale securities are marketable investments with no clear intention to sell.

💼Each classification triggers different reporting standards.

Q&A

What are trading securities?

—Trading securities are short-term investments that are actively traded or intended for immediate sale.

What are held-to-maturity securities?

—Held-to-maturity securities are long-term investments held until their maturity date.

What are available-for-sale securities?

—Available-for-sale securities are marketable investments that could be sold, but there is no clear intention to sell them.

How are trading securities reported?

—Trading securities are reported at fair value on the balance sheet, with unrealized gains or losses included in earnings.

How are held-to-maturity securities reported?

—Held-to-maturity securities are reported at amortized cost on the balance sheet.

Timestamped Summary

00:00When a company holds an investment, the intent with which it holds the investment is crucial as to how the investment must be accounted for.

00:13There are three classifications to define the intent of the investor: trading securities, held-to-maturity securities, and available-for-sale securities.

00:34Trading securities are usually stocks or bonds purchased for active trading or near-immediate sales.

01:25Held-to-maturity securities are long-term investments held until their maturity date.

02:15Available-for-sale securities are marketable investments that could be sold, but there is no clear intention to sell them.

02:32The reporting standards for each classification differ: trading securities are carried on the balance sheet at fair value, held-to-maturity securities are reported at amortized cost, and available-for-sale securities capture unrealized gains or losses on the income statement.

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