Final answer:
A holding loss is added to the accumulated depreciation on an asset to reflect its reduced value or to the investment account for devalued securities. This loss must be accurately recorded for transparent financial statements.
Step-by-step explanation:
When recording a holding loss, it is typically added to the accumulated depreciation on an asset. This action reflects the decrease in value of the asset over time. In accounting, the holding loss represents the portion of an asset's devaluation that is recognized for the period, which is beyond the systematic allocation of an asset's cost over its useful life through depreciation.
For investments, a holding loss is added to the investment account to show a decrease in the value of the security. It is essential that the loss is recorded properly on the financial statements to reflect a fair and accurate representation of the company's financial status.