Available-for-Sale Securities: Definition, vs. Held-for-Trading

An available-for-sale security (AFS) is a debt or equity security purchased with the intent of selling before it reaches maturity or holding it for a long period should it not have a maturity date. Accounting standards necessitate that companies classify any investments in debt or equity securities when they are purchased as held-to-maturity, held-for-trading, or available-for-sale. Available-for-sale securities are reported at fair value; changes in value between accounting periods are included in accumulated other comprehensive income in the equity section of the balance sheet.

AFS is an accounting term for financial assets that are neither held-for-trading nor held-to-maturity. Gains and losses from AFS securities are recorded in OCI, not net income, until they are sold. Unrealized gains and losses on AFS securities are not reported on the income statement but are included in "accumulated other comprehensive income" on the balance sheet, separate from retained earnings.

There are three types of securities: held-for-trading, held-to-maturity, and available-for-sale. Held-for-trading is for short-term profit, held-to-maturity is held until maturity, and available-for-sale is in-between. Each type is accounted for differently. Available-for-sale securities are recorded at fair value, and changes in value are recorded as unrealized gains or losses in other comprehensive income. This information may be included in the income statement or in a separate schedule.