All,
Can someone please explain where are unrealized gains/losses recorded on Income statement and Balance sheet for HTM, AFS and Trading securities. Recently, I had a conversation with one of my co-workers who told me that unrealized gains and losses for HTM and AFS are recorded on BS asset values but not for HTM. I thought BS will have HTMs under current or long-term assets depending on maturity. Isn’t it? Moreover, this article http://financialexamhelp123.com/investments-in-financial-assets/explains this stuff for Income Statement (Please see at the end). I am confused about what goes in BS and on Income statement. Can someone please explain?
Similarly, do unrealized gains/losses on HTM go to Income statement? I know that for Trading those do, and for AFS they go to OCI.
Please help. I am lost. Thanks in advance.
There are no unrealized gains/losses for HTM securities, because they are not reported at fair market value. They are reported at amortized cost, with the amortization of the premium/discount reported on the income statement.
Unrealized gains/losses for trading securities are reported on the income statement.
Unrealized gains/losses for AFS securities go direct to equity (net of taxes) through OCI.
Thank you S2000magician. However, do unrealized gains/losses for trading securities and AFS go on BS? OCI goes to Owners Equity. Hence, AFS goes to OE. I am not sure about AFS and trading securities.
Thanks in advance.
Unrealized gains/losses for trading securities and AFS securities appear on the balance in assets (they are reported at fair market value) and in equity (retained earnings for trading securities (through the income statement), OCI for AFS securities).
Perfect! Thanks S2000magician. It makes sense. I didn’t realize about the fair market value thing. Thanks so much!
The fair market value thing is the cause of the unrealized gains/losses; if you reported these securities at (amortized) historical cost, there would be no unrealized gains/losses.