accounting for stock trades

[Scott Drennan]

On Thu, Jan 02, 2003 at 10:28:33PM -0500, Derek Atkins wrote:
[snip]
> 
> You don't need a "balancing" split -- there is nothing to balance.
> And no, I do NOT believe that you should have a single, unbalanced
> split to denote losses or gains.
> 
I am not an accountant, and I haven't started using Gnucash for stock
tracking yet, but IMHO a balancing split is needed.

For tax purposes it's necessary to track Capital Gains.  In your 
example, you have bought and sold stock for a net gain of $50.  This
gain of $50 is Capital Gain Income for tax purposes in most 
jurisdictions.  Depending upon your tax laws capital gains of certain
types may have different inclusion rates.  

Example:
I believe in the US capital gains on assets held longer than 18 months
are taxed at a lower rate.  To track this I think you would need two
different income accounts and an appropriate balancing split when the
asset is sold.  

Is there another way to track this?



>From an accounting perspective I'm pretty sure the gain or loss has to
be posted to an income account too.  Any introductory accounting text
should explain this, but unfortunately I can't find mine...  

I did a quick search and did find this though:

"Ordinary income includes wages, business profits, dividends and
interest.  Since business profits can be positive or negative, ordinary
income can also be an ordinary loss.  Capital gain (loss) income arises
when an asset that's held for investment is sold for more (less) than
was paid for it."

http://216.239.51.100/search?q=cache:Uz7yh-Myg5oC:faculty.washcoll.edu/bios/falter/bus401/expanded02.ppt+double-entry+accounting+%22capital+gain%22&hl=en&ie=UTF-8
http://faculty.washcoll.edu/bios/falter/bus401/expanded02.ppt

I'm pretty sure even for currency transactions you still need to track
the gain/loss income.  e.g. If I buy 100 HKD for 20 USD, then sell 100
HKD for 25 USD, I've made 5 USD through currency trading, and this must
be posted to an income account somewhere.

I hope this hasn't confused the issue further...

cheers,
Scott