Question about Assets as reported vs account balance

[John Ralls]

On Jan 6, 2011, at 3:53 PM, Jay Ridgley wrote:

> Derek Atkins wrote:
>> Jay Ridgley <jridgley2 at austin.rr.com> writes:
>>> Folks,
>>> 
>>> Can someone explain to me why the Account for assets shows about
>>> $60,000 more that that shown on a Balance Report? As far as I can tell
>>> the difference is unrealized gains, however, should that not show on
>>> the Balance report and be included in the Asset total?
>>> 
>>> The Balance Report is not out of balance. Just the accounts...
>>> 
>>> Is there an account for Unrealized Gains???
>> No, because Unrealized Gains don't actually exist.  They are due to
>> changes in the price of an asset, but you still own the asset the gain
>> is unrealized.  You only realize the gain when you actually sell the
>> asset, and only then do you put the gain into your books.
>>> Cheers,
>>> Jay
>> -derek
> Derek,
> 
> Can you explain, why in the Account as shown from the gnu-data file the amount is some 50,000.00 MORE than that shown on the Balance Sheet report? This is true even though I have run a Close transaction.
> 
> If I remember my Accounting 101 course correctly the two amounts SHOULD be equal. it is like taking some of the assets I posses and hide them from prying eyes, even though those eyes are MINE!
> 
> What am I missing here, why is the asset shown on the Balance report as the Basis value and NOT the Current value?

It works like this: For anything other than money in the base currency of your account (i.e., US Dollars if you're keeping your books in the USA), there are two values: The book value and the market value. 

For accounting purposes, it's the book value that's important. That's going to be the price you paid for the asset (or the cost to make it if you're in business making things for sale) less the accumulated depreciation if it's an asset that you use in your business (e.g., a truck). There are certain securities which change book value as well: Some partnerships and trusts return capital rather than paying dividends, for example. That return of capital reduces your book value of the asset (which increases the capital gain when you sell it). A more complicated instance is an Original Issue Discount (or OID) Bond, where you're required to amortize the discount over the life of the bond (and pay income tax on the annual amortization); as you amortize the discount, your book value increases reducing the capital gain when you sell the bond -- and if you let the bond mature then the OID will have been completely amortized and there won't be a capital gain. The Balance Sheet reports the book value of all assets, and that's what you learned about in Accounting 101.

The other value is the market value. Some assets aren't very liquid or very fungible (that truck, for example), so the market value doesn't change all that much, or it's too hard to determine. Most people ignore the market value changes in assets like that. It's a rare person who looks up the going price for his car in "Kelly's Blue Book" if he isn't thinking of selling it. Other assets are highly fungible and trade on active markets, like stocks, commodity futures, or foreign currencies. The market value of those assets can change several times a second. Those values are of interest when you're considering how to redeploy investments or calculating your "net worth" for estate planning (or ego-priming), and it's the market value that gets displayed on Gnucash's chart of accounts page and on several investment-oriented reports.

Regards,
John Ralls