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:
|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:
|Unlisted instruments||All other liabilities (accounts payable, notes payable)|
|Loans and receivables|
Shareholders' (Stockholders') Equity Basics
InvestingLearn about the components of the statement of financial position and how they relate to each other.
InvestingKnowing what the company's financial statements mean will help you to analyze your investments.
InvestingTotal liabilities are the combined debts an individual or company owes.
Small BusinessA 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 ...
InvestingFinancial instrument is a general term used to describe a monetary asset.
InvestingCurrent 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 ...
InvestingIf you know how to read it, the balance sheet provides valuable information on a potential investment.
InvestingA long-term liability is an obligation a company owes a year or more into the future.
InvestingWe are all connected to the Fed's balance sheet, and the currency notes that we hold are its liabilities.