In recognizing a decline in the fair value of short-term share investments, an unrealized loss account is debited because

Question

Quizplus · Accepted Answer

When there is a decline in the fair value of short-term share investments, an unrealized loss account is debited because the securities have not been sold yet. This is a temporary account that reflects the decrease in the value of the investments, but until they are actually sold, it is considered an unrealized loss. Management may still believe that the shares will increase in value in the long run, so they do not intend to realize this loss in the near future. The fact that the share market is volatile or that management cannot determine the exact amount of the loss is not necessarily relevant to the accounting treatment of the unrealized loss.

In Recognizing a Decline in the Fair Value of Short-Term