The gains/ losses that arise from selling an equity security/ instrument, being the difference between the original acquisition price and the sales price. If the security has increased in value while being held, the difference is positive (i.e., realized gains), and if it has decreased in value over the course of its holding period, the difference is negative (i.e., realized losses). Realized gains or losses result from completed transactions, and as such appear (i.e., are recorded) on the income statement. Realization, in this sense, indicates that these gains/ losses have impacted an entity’s income- that is, they have been converted into cash (as an entry: debit cash) or into cash reduction (as an entry: credit cash).

Broadly speaking, a realized gain occurs when the sale price of an asset is exceeds its carrying amount. This entails that the asset is removed from the entity’s books. For example, an entity purchased  marketable securities for $100,000. One year later, it sold the securities for $120,000. In this case, the entity will record an amount of $20,000 as realized gains. Unless it sells these securities, any gain is treated as an unrealized gain. The opposite is true for a realized loss (assume these securities are sold for $80,000. A realized loss of $20,000 will be recorded).

Realized gains are part of an entity’s taxable income.