A security is a tradable asset of any kind. In accounting, security refers to any form of financial instrument that can be traded. A security is a contractual right to receive or deliver cash or another financial asset. The most common types of securities are stocks, bonds, and options.
In accounting, the value of a security is typically measured at its fair market value. The fair market value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.
For publicly traded securities, the fair market value is typically based on the last sale price on the trading day before the balance sheet date. For other securities, such as bonds, the fair market value may be based on quotes from market makers.
The accounting for securities depends on whether they are classified as held-to-maturity, trading, or available-for-sale.
Held-to-maturity securities are those that the company intends to hold until they mature and are typically reported at amortized cost. Trading securities are those that are bought and held primarily for resale in the near term and are reported at fair value with changes in fair value recognized in net income. Available-for-sale securities are those that are not classified as held-to-maturity or trading and are reported at fair value with changes in fair value reported in other comprehensive income.
The accounting for securities is governed by accounting standards such as US GAAP and IFRS. The accounting for securities can be complex, and companies should consult with accounting and legal professionals to ensure that they are in compliance with accounting standards.