Stocks and Balancing Accounts

[Charles Day]

On Mon, Jun 16, 2008 at 2:37 AM, Daniel Carrera <daniel.carrera at zmsl.com>
wrote:

> Charles Day wrote:
>
>> Assuming the report is correct, I suspect that you must have put the books
>> out of balance somewhere by forgetting to put in the capital gains or loss
>> on a sale of securities or foreign currency. I don't know any other way to
>> put GnuCash out of balance.
>>
>
> See http://www.mscs.dal.ca/~selinger/accounting/tutorial.html#2<http://www.mscs.dal.ca/%7Eselinger/accounting/tutorial.html#2>.
> section 2.2 for an example.
>
> You suggest I enter cap gains by hand. Look at section 2.2 above and you'll
> see that you cannot make the yellow lines fit by adding cap gains other than
> in the most simplistic cases.
>
>
>  Perhaps you imported a sale?
>>
>
> No. I did not import a sale.
>

Good. So that at least eliminates one possible source of imbalance...

Do you have any prices in the price editor?
>>
>
> Yes. I have many prices in the price editor.


Then I'm not sure why you are getting zeros in the Advanced Portfolio
Report. Perhaps someone else has a suggestion?

There are a number of different methods for calculating capital gains
> (average cost, FIFO, LIFO, specific lots, etc.)  I use whichever method
> creates the smallest tax liability.
>
> GnuCash should do this, or at least not tell me that my books are out of
> balance. I don't ask for a full cap gains feature. I just want GnuCash to
> handle currency changes so that the transactions balance.
>

I think you're right: GnuCash shouldn't allow you to manually enter a
transaction that puts the books out of balance (except maybe to fix books
that are already out of balance). At the very least there ought to be a
stern warning.

Regarding realized gains vs. unrealized gains: when you record a sale you
don't have to figure out what portion of the gain is realized vs. unrealized
right away. You just have to record the combined total of realized and
unrealized gains to get the books to balance. That's an easier calculation
that I think GnuCash ought to offer to enter on your behalf. In the
meantime, the Advanced Portfolio report does show the figure you'd need to
enter. (See the "Total Gain" column in the attached screenshot.)

If you use Selinger's section 4 method, the gains accumulate in the parent
account so you don't have to worry about calculating them or getting them
from a report, but it does add work in other ways... like managing all the
extra accounts and entering four split lines for each buy rather than the
usual two.

Unfortunately there is no way for GnuCash to figure out which method of
calculating the realized capital gain creates the smallest tax liability, as
this varies by tax regime and is affected by previous sales of other
securities in the same year, as well as expected sales later in the year.
But it would be nice if GnuCash could show what realized gain would result
from the various methods.

   I have money in CAD, USD, GBP and EUR. I have made many transactions
>>    in all four currencies.
>>
>> That may be why your books are out of balance.
>>
>    In a similar way, this system is unfeasible for multiple currencies.
>
> That's what I say. And my money-management program should not go out of
> balance just because I have to use many currencies.
>

I agree but GnuCash does allow you to get out of balance right now. :(

Unfortunately, GnuCash is not very helpful in this area.  As an alternative
> method to what you have already seen, you could take a look at this:
> http://www.mscs.dal.ca/~selinger/accounting/tutorial.html<http://www.mscs.dal.ca/%7Eselinger/accounting/tutorial.html>
>
> There it is! What GnuCash does is what it says in section 2.2. "Double
> entry foreign currency accounting, the wrong way". And the reason GnuCash
> doesn't balance is the same reason why 2.2. doesn't balance.
>
> What GnuCash could do is use the method in section 3.2 (SSAP 20). Notice
> that this method is not feasible for a user (see "disadvantages") but
> GnuCash could do it.
>
> The method that I currently use (with my "Currency > XYZ" accounts) is the
> method described in section 4. Or in particular, the one on this page:
>
> http://www.mscs.dal.ca/~selinger/accounting/gnucash.html<http://www.mscs.dal.ca/%7Eselinger/accounting/gnucash.html>
>
>
> You see, I already had this discussion about currencies a year ago on this
> list. Someone (maybe you) pointed me to that same accounting tutorial and I
> implemented the solution in section 4 because GnuCash does not support the
> method in section 3.2. This takes us full circle to my initial email. Today,
> a year later, I want to start buying stocks. To continue using my current
> method (section 4) would be cumbersome and I was hoping that there would be
> a better alternative. I guess there isn't.
>

The current problem with currencies applies equally to stocks. It is really
the same problem. If you don't want to calculate the gains yourself or use
the Advanced Portfolio report then it sounds like you'd be best off using
the section 4 method for trading your securities.

As far as why your books are currently out of balance, if you have only
entered stock buys in your default currency then the stocks aren't the
problem. So it would have to come from some of your currency transactions.

Cheers,
Charles

Daniel.
>
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