Definition: Available for sale securities, often abbreviated AFS, are debt and equity investments that are not classified as trading or held-to-maturity securities. In other words, they are all the investments that don’t fit into the trading or held-to-maturity categories. Let’s take a look at the differences between these three investment categories.
What Does Available for Sale Securities Mean?
Available for sale securities are not actively managed and traded for a profit like trading securities. Instead, AFS are investments that the company holds and could set at any point. The intent isn’t to buy and sell these investments actively in order to turn a profit.
On the other hand, AFS aren’t meant to be held indefinitely or until they mature. Held to maturity securities are purchased with the intent to hold onto them and not sell them. Available for sale investments are readily sold because management never intended to keep them forever to receive a return on their investment.
Example
Available for sale securities are accounting for and valued much like trading securities because they are sold quite often. AFS balances are reported on the balance sheet at their fair market value. This means that at the end of each period, the AFS account must be evaluated and adjusted for the changes in the market price of the investment. For instance, if the stock price when down, the company would record an unrealized loss of the period and adjust the investment account down. These unrealized gains and losses are not reported on the income statement because they haven’t actually occurred yet. Instead, the unrealized activity is reported on the balance sheet as part of the comprehensive income section.
The presentation on the balance sheet depends largely on management’s intent. For example, management can intend to sell the investments in the current period. These securities would be reported as short-term investments. Likewise, securities that management intends to sell in future periods would be reported as long-term investments on the balance sheet.
