Define: Unrealized Profit

UK Accounting Glossary

Definition: Unrealized Profit



Advertisement



Full Definition of Unrealized Profit


An unrealized profit is a potential profit that has not yet been effected, i.e., a paper profit. Suppose an investor buys 25 shares of stock at $2 each on October 14. On October 22, the price is $3 per share. The unrealized profit is 25 x ($3-$2), or $25. An unrealized profit is ordinarily not taxed until the stock is sold and the profit realized. From the standpoint of investor psychology, though, an unrealized profit can pose problems: if the shares subsequently decline, some investors won’t sell the stock until the price is again $3 and they have the same unrealized profit. In this way, an unrealized profit penalizes investors who refuse to cut their losses. However, an unrealized profit ordinarily poses fewer issues for auditors of financial statements than an unrealized loss. Because of the principle of conservatism, an unrealized profit on, say, land, won’t be recorded — the land continues to be carried at historical cost. Note that unrealized profit is often called an unrealized gain.


Advertisement




Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/unrealized-profit/
Modern Language Association (MLA):
Unrealized Profit. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. March 31, 2020 https://payrollheaven.com/define/unrealized-profit/.
Chicago Manual of Style (CMS):
Unrealized Profit. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/unrealized-profit/ (accessed: March 31, 2020).
American Psychological Association (APA):
Unrealized Profit. PayrollHeaven.com. Retrieved March 31, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/unrealized-profit/

Definition Sources


Definitions for Unrealized Profit are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 5th February 2020.