Stock trades and realized gains/losses

[Linas Vepstas]

Hi,

I think there is some confusion here;  the lots system was deisgned to
avoid both the confusion and the 'complex calculations'.

> > > > come to as well.  That conclusion is that we should be tracking the
> > > > dollar amounts of securities, relegating the quantities to an ancillary
> > > > position (e.g., part of a Lot).

False.  You track the number of securities you own, and you track the
current price.  The value is just the product of these two.  The
underlying system works as before.

> > > gains/losses?  The problem is that when you track the dollar-amount of
> > > stock transactions you have to perform a lot of work to determine how
> > > many shares you currently own.  That means calculating Current Net
> > > Worth is a lot of work.

One must never track the value of the securities, as this is gaurenteed
to give the wrong answer.  One *must* track the quantity of securities
owned.   Net worth == quantity * price and is easy to compute.

> but I still would like realized gain/loss in income/expense accouts better,

A realized gain/loss occurs only when a stock is bought/sold.  There's
supposed to be a split that goes into an income/expense account to 
record this gain/loss.  (The absence of this split is one of the things
that's broken about the current gnucash).

Note       shrs    price      value
bought     100     $20         $2,000
sold      -100     $30        -$3,000
gain         0      --         $1,000
--------------------------------------
totals       0                  $0

You have to have balancing transactions for both the quantity and the
value.   The use of LOTS is the mechanism that allows you to compute
the correct gain/loss, since it allows you to figure out which shrs
were sold, at which price (by specifically earmarking a set of shares
out of a larger sea of them in the account).

> There are stocks that are listed at more than one exchange. I can buy shares
> of Siemens in Frankfurt for EUR and sell them in New York for USD.
> (This is no ADR, it's really dual listing)

This is an issue about the handling of currencies; its an unrelated
issue.  I don't know how to fix this.

> > > > easier when generating reports--there is no longer a need to run through
> > > > many Lots to get a total of realized gains/losses for a period.  You can

Whoever wrote this misunderstood lots. See above.


> > I'm not opposed to having an account per security--mainly because I
> > don't have enough to make it annoying.  That rapidly becomes unscalable,

Whoever wrote this misunderstood lots. See above.   What we currently
have is has been failing to scale for years.   We need lots to be able
to close books, and compute things like gain/loss.

*Please* review the lots design document.

> > though, which is why I would prefer to be able to enter investment
> > purchases in a single account, or an account per exchange.  It's

Please do not confuse how stocks are track with how they are displayed.
To account correctly, one *must* put one stock per account.

However, you can display  multiple stocks in one window.  This is what
the general-ledger widnow is supposed to be fore.  I can't help noting
that the general ledger window GUI layout is not ideal; this is a 'bug'
that needs fixing, and is independent of accounting principles.

> > > > Accountants generally are more interested in dollar amounts, not number
> > > > of shares 

This statement couldn't be more wrong.   If you don't count shares, and
count value instead, its called "Fraud".  Think "Lawsuit", "Judge", "Prison".

> I tend to agree. It is not absolutely neccessary that a stock register uses
> the priceDB to show current value. This is only neccessary for the portfolio
> report.

Huh?  How else can you compute the unrelaized gain/loss in your account?
The unreallized gain/loss is what gives you the "net asset value" or NAV! 
There  is no other way of knowing a value.


--linas


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pub  1024D/01045933 2001-02-01 Linas Vepstas (Labas!) <linas@linas.org>
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