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today we have a topic with us is called
trading securities in balance sheet now
what is trading securities in balance
sheet the first and the foremost thing
that we need to understand here is that
you know there are various sort of
securities which companies subscribe to
some are held for maturity some are
trading securities some made for some
investment purpose so there are
different purpose and for which the
securities up in hell if we will
understand over here trading securities
but we have one more topic that is held
for maturity so that is altogether a
different ballgame which is not included
here but we will try and understand this
first now as you can see on the asset
side we have cash short of investments
and are the details here that has been
mentioned the total available for sale
securities and trading securities total
short term investments we will try and
understand this in a detail format we'll
start with first
what is trading securities
since simple terms trading securities in
balance sheet are the short-term bit it
is the short-term bets for management to
earn a few bucks you know very short
while
now for example of trading security
let's say the management of the company
they invest a certain amount of money in
debt or maybe in terms of equity can
mean any so the purpose of doing this is
to buy and sell that particular bond of
or the stock within a short while to
make money now as we know that you know
the Starbucks SEC filings trading
securities includes equity mutual funds
exchange-traded funds and so on and so
forth so there are three classification
there are three classifications of
securities as free accounting trading
securities the securities that is held
to maturity and available for sale for
security available-for-sale securities
so we will understand more about the
security that are trading in detail now
let's understand understanding the
trading securities in detail see trading
securities in balance sheet are the
fastest-moving security among all three
the reason this these securities are
fastest moving is that you know these
securities are traded regularly they are
traded regularly on evenly in
the open market and these securities are
managed directly to the by the
management of the company to see whether
these securities can bring in more
profits for the current period or not
now as for the accounting system trading
securities are placed in the balance
sheet of the company at a fair value now
it is done so that the economic benefit
or loss can be shown on the financial
statement
during the period now since the company
will most probably sell of the
investments these investments are
considered as the current assets of the
company for the period and the market
value of the security changes every day
so that's why it's important that you
know security should be shown at the
fair value but the question remains what
we would do till the time the
investments are not actually been sold
what should be done so the treatment for
this is to create our temp account to
which we can transfer the unrealized
gain or losses and whenever the selling
is done we can write off the temporary
account and transfer the amount with the
income statement trading securities we
will try and understand the journal
entries here see let's understand with
the practical example of trading
securities journal entries let's say
there is a company called United cop and
it has kept aside 1,00,000 for
short-term investment amount won't be
used for any operational purpose or
working capital and the money would
purely be used for making a sort of you
can see a quick gain it will be made for
a complete quick game so the money would
be purely used to make the gain for the
short of investment in the management of
the united company has seen that you
know grow and lead corporate or
corporations has been doing extremely
well for the last couple of years and
the united company decided you know to
invest the entire amount into thee
stocks of the row and read corporations
of the market price of each stock of
grown lead corporation was valued at
let's say $5 per share so in the first
year in the first year of
investment the grow and lead corporation
has paid out the cash dividend it has
paid out the cash dividend of 0.5 per
share
and at the end of the year the value of
the shared purchase by United company
reached around $1,25,000 so later in the next year when
the shares were actually sold the amount
received was 1,20,000
and now how would we report these
transaction assuming that the management
of the United company had invested  1,00,000 for trading securities so first of
all we will treat each one transaction
you know separately and would see that
you know how transaction would get
reflected in the books of united company
now the first transaction was to invest
1,00,000 in trading securities of grown
read so the journal entry will go as
investment in trading securities account
that will be these account will be
debited to the extent of 1,00,000 to cash
account that will be 1,00,000 so these
journal entries were passed so that you
know we can create the current asset
that is called as investment in trading
securities and record it in the balance
sheet of the United company and cash is
credited since he added company has to
let go of their other current assets
cash to invest in the security the next
transaction would be related to the cash
dividend since grow and lead Corporation
has to declare a cash dividend of $4.5
per share the trading securities
journal entry will go as cash account
debit to dividend revenue that is again
1,00,000 here we have passed the entry to
reflect the income received in the
income statement and we have debited the
account cash account because United
company has been receiving cash in the
form of dividend and if the asset
increases we debit the assets asset and at the same time we have credited the dividend
revenue because when income increases we
credit the account and same dividend
revenue can be reflected in the income
statement of the books of accounts of
united company
so finally the media transactions of the
above example of trading securities the
fair value at which the valuation of the
share was recorded the end of the year
now on the concluding note which I want
to say that see from all of the above
discussion that we did it's very clear
know that how company can use certain
amount of money for short of investments
and can gain a lump sum
amount at the end of the period two
things are most important first it at
the end of the year the balance sheet
should reflect the fall in the value of
the stocks or the bonds in which the
amount is being invested and second the
reverse now on the conclusion note on
the conclusion part the new from the
above discussion it's clear that you
know how company can use certain amount
of money for the short term investments
any it can gain a lump sum the lump sum
part amount at the end of the period so
two things are most important here the
first thing is that at the end of the
year the balance sheet should reflect
the fair value of the stock it should
reflect the fair value of the stocks or
the bonds in which the amount is being
invested and second is the reverse entry
to affect the unrealized gain or losses
so that's it for this particular topic
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