Unrealized Gains and Losses Accounting Journal Entry
Unrealized gains and losses arise when the value of an asset increases or decreases but the asset has not yet been sold. These gains and losses are recorded to reflect the current market value of the asset, even though the gain or loss has not been realized through a sale.
Scenario:
A company holds investments in marketable securities. The value of these securities increases by ₹25,000 by the end of the accounting period, resulting in an unrealized gain.
1. Recording Unrealized Gain
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-30 | Marketable Securities A/c | 25,000 | |
| To Unrealized Gain on Investments A/c | 25,000 | ||
| (Being unrealized gain on marketable securities recorded) |
Explanation:
- Marketable Securities A/c is debited to increase the asset account to its fair market value.
- Unrealized Gain on Investments A/c is credited to recognize the gain that has not been realized through a sale.
Scenario:
The value of these securities decreases by ₹15,000 by the end of the accounting period, resulting in an unrealized loss.
2. Recording Unrealized Loss
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-30 | Unrealized Loss on Investments A/c | 15,000 | |
| To Marketable Securities A/c | 15,000 | ||
| (Being unrealized loss on marketable securities recorded) |
Explanation:
- Unrealized Loss on Investments A/c is debited to recognize the loss that has not been realized through a sale.
- Marketable Securities A/c is credited to decrease the asset account to its fair market value.
Comprehensive Example with Multiple Assets
Scenario:
A company holds various investments with the following unrealized changes:
- Investment A: Increase in value by ₹10,000
- Investment B: Decrease in value by ₹5,000
- Investment C: Increase in value by ₹7,000
3. Recording Multiple Unrealized Gains and Losses
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-30 | Marketable Securities A/c (Investment A) | 10,000 | |
| Marketable Securities A/c (Investment C) | 7,000 | ||
| To Unrealized Gain on Investments A/c | 17,000 | ||
| (Being unrealized gains on investments A and C recorded) |
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-30 | Unrealized Loss on Investments A/c (Investment B) | 5,000 | |
| To Marketable Securities A/c (Investment B) | 5,000 | ||
| (Being unrealized loss on investment B recorded) |
Explanation:
- Marketable Securities A/c (Investment A) and Marketable Securities A/c (Investment C) are debited to increase the asset accounts to their fair market values.
- Unrealized Gain on Investments A/c is credited to recognize the combined gains.
- Unrealized Loss on Investments A/c (Investment B) is debited to recognize the loss.
- Marketable Securities A/c (Investment B) is credited to decrease the asset account to its fair market value.
