Final answer:
Unrealized increases and decreases for investments like available-for-sale securities are recorded in an owners' equity account called accumulated other comprehensive income (AOCI). Realized gains and losses are recognized when the asset is sold, unlike unrealized gains and losses that are reflected directly in equity.
Step-by-step explanation:
Unrealized increases and decreases in investment value are recorded directly in an owners' equity account primarily for certain types of investments, such as those classified as available-for-sale securities.
These are investments in debt or equity securities that are not classified as held-to-maturity or trading securities. Unlike realized gains and losses, which occur when an asset is sold and which affect net income, unrealized gains and losses are recorded directly in equity through other comprehensive income. This adjustment is reflected in a specific equity account within the shareholders' equity section of the balance sheet, often referred to as accumulated other comprehensive income (AOCI). An example of this would be purchasing a share of stock in a company like Wal-Mart for $45 and seeing the value of that share increase to $60 without selling it; the $15 increase is an unrealized capital gain which would affect the AOCI.