How are realized gains from stock recorded in accounting?

Realized gains from stock are recorded as an addition to revenue. When an investor sells a stock for more than its purchase price, the profit made from that sale is considered a realized gain. This gain is recognized in the accounting period when the sale occurs and is classified as revenue because it represents an increase in the economic benefits flowing into the business as a result of the transaction. Including realized gains in revenue allows for proper reflection of the company’s financial performance in its financial statements.

The other options do not accurately represent the nature of realized gains. For example, recognizing them as a decrease in equity would not reflect the increase in wealth actually experienced through the sale. Similarly, treating realized gains as an offset to expenses would incorrectly represent the financial results, as this would misalign gains with expenses in reporting. Lastly, categorizing realized gains as a liability would imply an obligation that the company must settle, which is not appropriate since such gains represent profit rather than a future outflow of resources.