Question

1. What is the difference between a realized gain/loss and an unrealized gain/loss? Response must be at least 150 words.

Answer 1

What is the difference between a realized gain/loss and an unrealized gain/loss?

In accounting, there is a difference between realized and unrealized gains and losses. Realized income or losses refer to profits or losses from completed transactions. Unrealized profit or losses refer to profits or losses that have occurred on paper, but the relevant transactions have not been completed. You can also call an unrealized gain or loss a paper profit or paper loss, because it is recorded on paper but has not actually been realized.

Record realized income or losses on the income statement. These represent gains and losses from transactions both completed and recognized. Unrealized income or losses are recorded in an account called accumulated other comprehensive income, which is found in the owner’s equity section of the balance sheet.A realized gain results from selling an asset at a price higher than the original purchase price.If an asset increases in value while you are still holding onto it, the increase is called an unrealized gain. Stocks in a portfolio may go up and down in value, but their gains or losses go unrealized until you sell the stock. For example, if you buy a stock for $100 and a month later the stock is valued at $150, you have an unrealized gain of $50. Realized gains happen when you sell an asset. The realized gain is the difference between the price of the asset at the time you sell it and the original price you paid for it. When a security such as a stock is traded, its gain or loss is said to be "realized." Only realized gains and losses are reported on your tax returns.