Financial Statements - Balance Sheet Components - Marketable & Nonmarketable Instruments

Marketable & Nonmarketable Instruments
Financial instruments are found on both sides of the balance sheet. Some are contracts that represent the asset of one company and the liability of another. Financial assets include investment securities like stocks and bonds, derivatives, loans and receivables. Financial liabilities include derivatives, notes payable and bonds payable. Some financial instruments are reported on the balance sheet at fair value (marking to market), while others are reported at present value or at cost. The FASB recently issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," which allows any firm the ability to report almost any financial asset or liability at fair value. Marketable investment securities are classified as one of the following:

  • Held to Maturity Securities: Debt securities that are acquired with the intention of holding them until maturity. They are reported at cost and adjusted for the payment of interest. Unrealized gains or losses are not reported.
  • Trading Securities: Debt and equity securities that are acquired with the intention to trade them in the near term for a profit. Trading securities are reported on the balance sheet at fair value. Unrealized gains and losses before the securities are sold are reported in the income statement.
  • Available for Sale Securities: are debt and equity securities that are not expected to be held until maturity or sold in the near term. Although like trading securities, available for sale securities are reported on the balance sheet at fair value, unrealized gains and losses are reported as other income as part of stockholder's equity.

With all three types of financial securities, income in the form of interest and dividends, as well as realized gains and losses when they are sold, are reported in the income statement.

The following are measured at fair value:

Assets Liabilities
Financial assets held for trading Financial assets held for trading
Financial assets available for sale Derivatives
Derivatives Non-derivative instruments hedged by derivatives
Non-derivative instruments hedged by derivatives  

The following are measured at cost or amortized cost:

Assets Liabilities
Unlisted instruments All other liabilities (accounts payable, notes payable)
Held-to-maturity investments  
Loans and receivables  
Shareholders' (Stockholders') Equity Basics


Related Articles
  1. Economics

    Understanding Total Liabilities

    Total liabilities are the combined debts an individual or company owes.
  2. Investing

    What's a Liability?

    A liability is a debt. It is an obligation that arises during the course of business and represents a third-party claim on the company's assets. A liability can arise in a number of different ...
  3. Investing Basics

    Understanding Financial Instruments

    Financial instrument is a general term used to describe a monetary asset.
  4. Investing

    Current Liabilities

    Current Liabilities are company debts due within one year or one operating cycle, whichever is greater. An operating cycle is the time it takes a company to purchase inventory and convert it ...
  5. Investing

    What Is A Derivative?

    A derivative is a security whose price is dependent upon or derived from one or more underlying assets. Learn more on how investors can use this financial instrument in their trading strategies.
  6. Economics

    Explaining Long-Term Liability

    A long-term liability is an obligation a company owes a year or more into the future.
  7. Investing Basics

    5 Tips For Reading A Balance Sheet

    If you know how to read it, the balance sheet provides valuable information on a potential investment.
  8. Fundamental Analysis

    What's Fair Value?

    Fair value has three different meanings depending on the context.
  9. Investing Basics

    Examples Of Asset/Liability Management

    In its simplest form, asset/liability management entails managing assets and cash inflows to satisfy various obligations; however, it's rarely that simple.
  10. Investing Basics

    Explaining Noncurrent Liabilities

    Noncurrent liabilities are financial obligations a company owes a year or more into the future.
RELATED TERMS
  1. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  2. Other Current Liabilities

    A balance sheet entry used by companies to group together current ...
  3. Current Liabilities

    A company's debts or obligations that are due within one year. ...
  4. Total Liabilities

    The aggregate of all debts an individual or company is liable ...
  5. Other Long-Term Liabilities

    A balance sheet item that includes obligations which are not ...
  6. Liability

    A company's legal debts or obligations that arise during the ...
RELATED FAQS
  1. How are accounts payable listed on a company's balance sheet?

    Find out how accounts payable is listed on a company's balance sheet, why it is considered a current liability, and how it ... Read Answer >>
  2. What is the difference between an expense and a liability?

    Learn what liabilities and expenses are, which financial statements they are listed on, and the differences between liabilities ... Read Answer >>
  3. On which financial statements does a company report its long-term debt?

    Discover which financial statements are used to report a company’s long-term debt, as well as how a company uses debt to ... Read Answer >>
  4. What kinds of liabilities appear on the balance sheet?

    Learn what current and non-current liabilities are, the difference between the two, and examples of liabilities that a company ... Read Answer >>
  5. Does the balance sheet always balance?

    Yes, a balance sheet should always balance. The name "balance sheet" is based on the fact that assets will equal liabilities ... Read Answer >>
  6. How do marketable securities impact a company's financial statements?

    Understand how the various components of the financial statements are impacted by investments in marketable securities owned ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center