Mark-to-Market Accounting

Mark-to-market accounting is a method of valuing assets and liabilities based on their current market value rather than their historical cost. This accounting practice provides a more accurate reflection of a company’s financial condition by adjusting the value of its assets and liabilities to match market fluctuations. Mark-to-market accounting is commonly used in the financial industry for assets such as stocks, bonds, and derivatives but can lead to volatility in reported earnings.

Example

A company holding a portfolio of bonds adjusts the value of those bonds to reflect their current market price, rather than the price at which they were originally purchased, using mark-to-market accounting.