Definition: Marketable securities are non-cash financial investments held by an organization that are easily convertible into cash at a reasonable market value.
What Does Marketable Securities Mean?
What is the definition of marketable securities? These investments are some of the most common forms of non-cash financial assets held by individuals or companies. These financial instruments consist of certificates of deposit (CDs), stocks, bonds, treasury bills, and any other form of non-cash investments.
Two main characteristics of these securities are their availability and commonly recognized value. In other words, they are readily bought and sold on public exchanges for a commonly accepted market price. Depending on the type of marketable security, the valuation may be defined by specific terms (like a CD), or the value may be defined by public exchanges (like a stock).
Since these investments have a known value and are so easily converted into cash, they are typically reported on the balance sheet in the current assets section as a cash equivalent.
Let’s take a look at an example.
Example.
Let’s assume that you are the owner of Industrial, Inc. Your company has $10,000 in excess cash reserves in the bank and you decide to invest in the stock market. You initiate your plan by depositing your cash in a money market account offered by an institution that allows you to invest your funds in the stock market through a broker. After establishing your account, a friend gives you a great stock tip, and you purchase 1,000 shares of a promising company.
Industrial, Inc. would credit the cash account and debit the marketable security account to record this transaction. Now the company can either hold on to the investments or sell them converting the investments back into cash.
As long as the company holds the investment, it would report these securities in the current assets section of the balance sheet at the end of each year. Depending on what your intention is for this investment, they may or may not be adjusted to fair market value at the end of each reporting year.
Summary Definition
Define Marketable Securities: Marketable security means a non-cash financial asset that is easily convertible into cash.
