What is a common method of recording earned interest from securities?

Recording earned interest from securities as interest income or trade income aligns with the accounting principles applicable to financial instruments. When securities generate interest, such as bonds or fixed-income investments, this interest is recognized during the period it is earned, regardless of whether it has been received in cash. This reflects the accrual basis of accounting, which requires that income be recorded when earned.

Interest income represents the earnings generated from holding these securities and is typically categorized separately from capital gains, which arise from selling securities at a higher price than purchased. This method allows for a clearer financial picture by differentiating between regular income generated from investments and potential profits realized upon their sale. Furthermore, classifying it under interest income or trade income is standard practice in financial reporting, ensuring consistency and compliance with relevant accounting standards.

In contrast, categorizing it as capital gain would misrepresent the nature of the income. Recording it only as dividend income would incorrectly exclude the interest generated from fixed-income securities. Not recording it until realized would also violate the principles of accrual accounting by postponing recognition of income that has already been earned.