weighted average in Balance Sheet (was: Re: Stock Sales -
Balance sheet unbalanced)
gwhitney at pobox.com
Mon Jan 24 17:26:04 EST 2005
Christian Stimming <stimming <at> tuhh.de> writes:
> However, there is a particular reason to have "Weighted Average" the
> default for any of the multi-currency report: GnuCash has two kinds of
> prices. There are *explicit* prices with an entry in the Price Editor.
> And there are *implicit* prices whenever a transaction with multiple
> currencies is booked.
Is there someplace I can read about the decision to keep these two kinds of
prices distinct? It's frustrating to me because I enter lots of transactions
concerning mutual funds (for example, the transactions each quarter from my
employer's contributions to TIAA-CREF funds in my 403(b)). In each of those
transactions, a price is entered for the fund. Yet to get the value of the
account updated in the "Total in report currency", I have to (redundantly, from
my point of view) enter those prices in the Price Editor. It also seems like the
other problems you mention below would go away if, at least for most purposes,
the implicit and explicit prices were merged into a single list of known prices
at various times. Commercial software in the same area as GnuCash (I only have
experience with the one whose name starts with Q) seems to work in this way. Why
can't/shouldn't GnuCash work this way?
My apologies if this is an uninformed question, or if there's some way to get
GnuCash to consider all implicit prices to be explicit, or something like that.
Any pointers would help; and if possible I'd appreciate replies to
gwhitney at pobox.com in addition to this list.
Thank you so much,
> Users with stock accounts probably have all their prices entered into
> the price editor as explicit prices. However, users with no stocks but
> rather some foreign currencies usually have no prices in the price
> database but have all prices/exchange rates only as implicit prices in
> their currency exchange transactions. If those users open any of the
> multi-currency reports and the default is one of the explicit-price
> options (nearest/latest in time) as opposed to the implicit-price option
> (weighted average), then these users will surprisingly observe that
> their foreign currency exchange rate is unknown, i.e. zero. This is
> usually very surprising for the users ("Where are my foreign currencies?
> Who said gnucash is supporting multi-currencies?"). Therefore the
> decision was at that time to make "Weighted Average" the price default,
> because that guarantees at least the availability of any non-zero
> price/exchange rate. (In engineer-speak: On average, this option will
> give a better approximation to the desired balance sheet result than any
> other option.)
> Unfortunately, the downside of that decision is the behaviour you've
> just observed: For stock accounts, the price obtained from the "weighted
> average" is probably plain wrong or at least unintended by the user. If
> anyone can come up with a suggestion on how to change the default
> multi-currency setting *and* still prevent the shock for the
> implicit-price-users of seeing all their balances at zero not knowing
> what's wrong -- then of course we should implement that suggestion. But
> simply changing the average will only cause a different problem to show up.
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