The Classification of Marketable Securities

by Calla Hummel; Updated September 26, 2017

Businesses frequently hold securities -- investment vehicles -- in other companies or government ventures. Marketable securities are those securities that can be quickly converted to cash by selling them on financial markets. Those securities must be recorded and accounted for on the company's balance sheet each quarter. Accountants classify securities based on the company's intentions with them.

Marketable Securities

The book "Financial Accounting: An Introduction to Concepts, Methods and Uses" by Clyde Stickney and Roman Weil defines marketable securities as bonds, stocks and other investment vehicles that people trade on an active market that give the investments a widely known market value. The book also notes that the existence of an active market makes these securities liquid, meaning they can be quickly turned into cash. Marketable securities are classified as assets in the current assets account, appearing as current assets on the balance sheet.

Trading Securities

Accountants classify marketable securities that the firm plans to keep for only a short period as trading securities. The firm keeps these securities as a way to make a short-term profit, and, as a result, only financial institutions have significant trading securities holdings. Accountants revalue trading securities with each new balance sheet using current market quotations.

Held to Maturity

Businesses often put money into bonds as a way to save or store cash while gaining income from interest payments. In finance, bonds are part of a category called debt securities. Debt securities mature, meaning they reach a point where all the debt has been paid back and interest payments cease. If the business plans to hang on to the bond, accountants classify it as a held-to-maturity security and lists it as a current or long-term asset, depending on the maturity date.

Available for Sale

Accountants classify all other marketable securities as available for sale. The company can decide whether it wants to classify a given available-for-sale security as a current asset or long-term asset. Regardless, the asset is valued at fair market value, with a separate gain and loss account in the shareholder equity section of the balance sheet that details the appreciation or depreciation of the securities. When a security is sold, the gain or loss moves from the balance sheet to the income statement.

About the Author

Calla Hummel is a doctoral student studying contraband in international political economy. She supplements her student stipend by writing about personal finance and working as a consultant, as well as hoping that her investments will pan out.