Available-For-Sale Security

Loading the player...

What is an 'Available-For-Sale Security'

An available-for-sale security is a debt or equity security purchased with the intent of selling before it reaches maturity, or selling prior to a lengthy time period in the event the security does not have a maturity. Accounting standards necessitate that companies classify any investments in debt or equity securities when they are purchased as held to maturity, held for trading or available for sale. Available-for-sale securities are reported at fair value; changes in value between accounting periods are included in comprehensive income until the securities are sold.

BREAKING DOWN 'Available-For-Sale Security'

An available-for-sale security is a debt or equity security not classified as a held-for-trading or held-to-maturity security. Held-for-trading securities are purchased and held primarily for sale in the short term. The purpose is to make a profit from the quick trade rather than the long-term investment. On the other end of the spectrum are held-to-maturity securities. These are debt instruments or equities that firms plan on holding until maturity. Available for sale, or AFS, is the catch-all category that falls in the middle. It is inclusive of securities, both debt and equity, the company plans on holding for a long period of time but could also be sold.

Accounting for Available-for-Sale

From an accounting perspective, each of these categories is treated differently as recorded on the balance sheet and income statement. In most cases, the accounting for available-for-sale securities is the same as the accounting for trading securities. Due to the short-term nature of the investments, they are recorded at fair value. For trading securities, the changes to the fair market value are recorded against operating income. However, changes in the value of available-for-sale securities are recorded as an unrealized gain or loss in other comprehensive income (OCI). Some firms include OCI with the income statement, while others provide a separate schedule detailing what is included in total comprehensive income.

Available-for-Sale Accounting Reporting

If a company purchases available-for-sale securities with cash for $100,000, it results in a debit to cash and a credit to available-for sale securities for $100,000. If the value of the securities declines to $50,000 by the next reporting period, the investment must be "written down" to reflect the change in the fair market value of the security, and this change is recorded as a decline in other comprehensive income. Likewise, if the investment goes up in value, it is recorded as an increase in other comprehensive income. The security does not need to be sold for the change in value to be recognized in OCI. It is for this reason these gains and losses are considered "unrealized" until the securities are sold.

RELATED TERMS
  1. Held-For-Trading Security

    Debt and equity investments that are purchased with the intent ...
  2. Held To Maturity Security

    Accounting standards necessitate that companies classify any ...
  3. Marketable Securities

    Very liquid securities that can be converted into cash quickly ...
  4. Held-to-Maturity Securities

    Debt securities that a firm has the ability and intent to hold ...
  5. Comprehensive Income

    The change in a company's net assets from nonowner sources over ...
  6. Security

    A financial instrument that represents an ownership position ...
Related Articles
  1. Investing

    What is an Available-for-Sale Security?

    Available-for-sale securities are debt or equity securities that are held for indefinite periods of time.
  2. Investing

    What's Accumulated Other Comprehensive Income?

    Accumulated other comprehensive income lists gains and losses a firm has yet to settle.
  3. Markets

    What's a Debt Security?

    A debt security is a financial instrument issued by a company (usually a publicly traded corporation) and sold to an investor.
  4. Investing

    Accounting For Intercorporate Investments

    Understanding these investments is key to determining the value and future prospects of any business.
  5. Trading

    What's a Marketable Security?

    Marketable securities are financial instruments that can be readily bought and sold in a public market. The key feature is the ease with which it can be sold and converted into cash. Usually, ...
  6. Markets

    Introduction to Treasury Securities

    Purchasing bonds that are backed by the full faith and credit of the U.S. government can provide steady guaranteed income and peace of mind. Knowing the characteristics of each type of treasury ...
  7. Markets

    What are Government Securities?

    Government securities are debt instruments that governments issue to raise capital.
  8. Investing

    Understanding Short-Term Investments

    These are investments that have a maturity date of less than one year, or will be liquidated within a year.
  9. Investing

    How Does Securities Lending Work?

    Securities lending is the act of loaning a stock or other security to an investor or firm.
  10. Investing

    What is Comprehensive Income?

    Comprehensive income is a part of the owners’ equity section of the balance sheet.
RELATED FAQS
  1. What are some examples of items that count as comprehensive income?

    Take a look at some of the more common examples of other comprehensive income, or OCI, and learn how OCI differs from standard ... Read Answer >>
  2. 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 >>
  3. What are the differences between comprehensive income and other comprehensive income?

    Learn what the accounting terms "comprehensive income" and "other comprehensive income" can tell an investor's financial ... Read Answer >>
  4. What are the characteristics of a marketable security?

    Find out what it takes for a financial asset to be considered a marketable security, including its liquidity, intent of use ... Read Answer >>
  5. How do I evaluate a debt security?

    Look at a brief overview of the important factors to consider before purchasing a debt security, such as a corporate or government ... Read Answer >>
  6. Does working capital include marketable securities?

    Learn how marketable securities such as Treasury bills (T-bills) and commercial papers are part of current assets and the ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center