What is the treatment of Unrealized Gain/Loss for Marketable Securities?

The treatment of unrealized gains and losses for marketable securities is recorded in equity. This accounting practice applies primarily to securities classified as "available-for-sale," where unrealized gains and losses are recognized in other comprehensive income and subsequently included in shareholders' equity on the balance sheet, rather than on the income statement.

This treatment reflects the principle that unrealized gains and losses do not represent actual cash inflows or outflows until the securities are sold. By including these unrealized amounts in equity, the financial statements provide a more comprehensive view of the company's financial position, allowing stakeholders to see the potential impacts on equity without recognizing these fluctuations as current revenue or expenses.

On the other hand, recording unrealized gains or losses as revenue or on the income statement would misrepresent the actual income and performance of the company, as these amounts have not been realized through a transaction. Recording them directly in the asset account would not accurately reflect the changes in market value and could distort the financial statements. Thus, the correct treatment aligns with the overall objective of fair financial reporting and provides clarity to users of the financial statements.