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How are unrealized gains or losses recorded for available-for-sale debt securities?

If a company classifies a debt security as available-for-sale, any unrealized gains or losses are recorded to other comprehensive income (“OCI”), which is a component of equity on the balance sheet. Unrealized gains or losses are calculated based on the change in fair value over a reporting period (e.g. January 1st to December 31st). Gains or losses are only recorded in the income statement when the debt security is sold, and the gain/loss can be “realized”.


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    Unrealized gains or losses are recorded directly to the income statement for the change in fair value that occurred during the period. The visual below compares the treatment for debt trading securities to the other two types of debt securities, which are available-for-sale and held-to-maturity.