What is Available For Sale Securities?

Available for Sale Securities Example

source: Starbucks SEC Filings

Available for Sale Investments for Starbucks included Agency Obligations, Commercial Paper, Corporate Debt Securities, Foreign government obligations, US treasury securities, Mortgage and other ABS, andA certificate of deposit (CD) is an investment instrument mostly issued by banks, requiring investors to lock in funds for a fixed term to earn high returns. CDs essentially require investors to set aside their savings and leave them untouched for a fixed period.read more Certificate of depositsCertificate Of DepositsA certificate of deposit (CD) is an investment instrument mostly issued by banks, requiring investors to lock in funds for a fixed term to earn high returns. CDs essentially require investors to set aside their savings and leave them untouched for a fixed period.read more.

The total fair value of such securities was $151.7 million in 2017.

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Available For Sale Securities Journal Entries

ABC Bank bought $100000 equity Securities of Divine Limited on 01.01.2016, classified as AFS in its books of accounts. At the end of the accounting year, ABC Bank realized that the value of the Available for Sale investment had declined to $95000 by the end of the period. At the end of the second-year investment, the value increased to $110000, and ABC Bank sold the same.

#1 – Purchase of Securities

Journal Entry to record the purchase of $100000 of equity securities of Divine Limited is mentioned as follows:

#2 – Decline of Value

Journal Entry to record the decline in the value of equity securities at the end of the year is mentioned as follows:

#2 – Increase in Value

Journal Entry to record the increase in the value of equity securities at the end of the second year, as well as the sale of an investment, is mentioned as follows:

Thus, when an Available for Sale investment is classified under the AFS category, any unrealized gain or loss is reported in theOther comprehensive income refers to income, expenses, revenue, or loss not being realized while preparing the company’s financial statements during an accounting period. Thus, it is excluded and shown after the net income.read more Other Comprehensive IncomeOther Comprehensive IncomeOther comprehensive income refers to income, expenses, revenue, or loss not being realized while preparing the company’s financial statements during an accounting period. Thus, it is excluded and shown after the net income.read more, as shown above in the case of ABC Bank. Once the same is realized on the sale of such securities is reported in the Income Statement.

Available for Sale Securities in Banks and Financial Institutions

They are broadly classified by Bank and Financial Institutions under the Banking Book or the Trading bookThe Trading BookTrading book is the type of book maintained by the bank, financial institution or a stockbroker banks for recording the transactions of the clients who have given them an opportunity to act as the broker or middle person for dealing in securities. read more.

  • Banking Book refers to assets on a Bank’s balance sheet that is expected to be held to maturity. Banks and Financial Institutions are not required to mark these assets on a mark to market (MTM) basis, and such assets are usually held at historical costHistorical CostThe historical cost of an asset refers to the price at which it was first purchased or acquired.read more in the books of accounts of the company. The popular category includes assets under the Held to Maturity (HTM) category.Trading Book refers to assets held by a Bank which are available for sale and are traded regularly. These assets are acquired with the intent not to be held till maturity but to profit from them over the near term. Banks and Financial Institutions are required to mark these assets on a mark to market (MTM) daily, and such assets are recorded at fair value, also known asMark to Market Accounting means recording the value of the balance sheet assets or liabilities at current market value to provide a fair appraisal of the company’s financials. The reason for marking certain market securities is to give an accurate picture, and the value is more relevant than the historical value.read more Mark to market accountingMark To Market AccountingMark to Market Accounting means recording the value of the balance sheet assets or liabilities at current market value to provide a fair appraisal of the company’s financials. The reason for marking certain market securities is to give an accurate picture, and the value is more relevant than the historical value.read more. The popular category includes assets held under the Held for Trading (HFT) category and the Available for Sale (AFS) category.

Differences Between Available for Sale Securities vs. Trading Securities vs. Held to Maturity Securities

Conclusion

Available For Sale Securities Video

This article has been a guide to what is Available for Sale securities and its definition. Here we discuss its examples and available for sale securities journal entries and how Banks and Financial Institutions report it. You may also learn more from the following accounting articles –

  • Long-Term Debt in Balance SheetTangible vs. Intangible Assets DifferencesMarketable Securities on the Balance SheetWhat are Asset-Backed Securities?Capital Reserve and Revenue Reserve