Tracking realized gains/losses with mutual funds

[Errol Siegel]

> Message: 16
> Subject: Re: Tracking realized gains/losses with
> mutual funds
> From: Matthew Vanecek <mevanecek@yahoo.com>
> To: errol@bitterkitten.com
> Cc: gnucash-user@lists.gnucash.org
> Organization: 
> Date: 08 Dec 2002 23:30:02 -0600
> 
> 
> --=-F40zBluG1rcvCH25gDRB
> Content-Type: text/plain
> Content-Transfer-Encoding: quoted-printable
> 
> On Sun, 2002-12-08 at 16:34, Errol Siegel wrote:
> > > On Sun, 2002-12-08 at 11:06, Errol Siegel wrote:
> > > > I have a question about tracking mutual funds.
>  I
> > > have
> > > > several mutual funds set up in gnucash.  I am
> able
> > > to
> > > > track the current value and unrealized
> gain/loss
> > > just
> > > > fine.  However, I traded shares of one fund
> for
> > > shares
> > > > of another fund and in doing so realized a
> loss.=20
> > > The
> > > > Balance Sheet Report does not seem to have a
> way
> > > of
> > > > showing this loss and instead shows an
> imbalance
> > > (in
> > > > the amount of the loss).  I am using gnucash
> > > 1.6.8.=3D20
> > > > Is this a known issue with this version?  Is
> there
> > > > something I need to do differently to make
> this
> > > work?
> > > >=3D20
> > >=20
> > > Common accounting practice suggests creating
> > > accounts to hold realized
> > > losses/gains.  I think it would be an Income
> > > account.  You should move
> > > the amount of the loss/gain to the realized
> account.
> > >=20
> > > You may want to invest in a decent accounting
> book
> > > that covers such
> > > issues.  Once you understand the principles,
> > > creating the accounts is
> > > trivial.
> > >=20
> > > HTH a little,
> > > --=3D20
> > > Matthew Vanecek
> >=20
> > Thanks for the response.  I believe I have a full
> > understanding of the accounting principles.  My
> > question is purely technical: how do I do this
> with
> > gnucash?  In the example I listed in my previous
> > e-mail, I realized a loss, which would go into a
> 'loss
> > expense' account (debit).  BUT - what account
> would be
> > credited?  I don't see how it could be the mutual
> fund
> > account since it tracks a balance of shares, not
> > dollars.
> >=20
> 
> The loss isn't realized until you actually sell the
> asset for a loss, at
> which time you increase the balance of your "losses"
> expense or
> whatever.  You would decrease the Asset account by
> the (original, I
> think, or depreciated? not sure...) value of the
> asset, and the Cash
> received would increase your bank account, and the
> realized loss would
> increase the balance of the Loss expense account. In
> your case, perhaps
> use the 2nd MF account instead of the Cash account,
> but the rest would
> be the same?
> 
> Although, do you mean that after you executed the
> trade, the value of
> the 2nd MF fell?  That would still count as an
> unrealized loss.  But if
> at the time you executed the trade the value of the
> source fund was
> greater than the destination fund (e.g., you traded
> 10 shares at
> $10/share for 10 shares at $8/share), increase the
> balance of the dest.
> fund by however much, and split the value of the
> rest into your Loss
> expense account, would be my guess.  Your loss would
> be the difference
> between the source and destination values, and added
> to the destination
> value, would balance the transaction.
> 
> I'm getting a headache just thinking about
> it--perhaps an accounting
> expert could help more...

I must re-state that I believe the problem to be
technical and not accounting-related.

Perhaps an example would help clarify the problem.

Transaction #1 - buy 10 shares of MF @ $5
     credit    debit  balance
MF              50      50
cash   50                0

Transaction #2 - sell 5 shares of MF @ $3
            credit    debit  balance
MF           25               25
cash                   15     15
loss expense           10     10

Seems easy enough, right?  Here's the problem: gnucash
mutual fund accounts force each transaction split to
fit this equation:

 credit (or debit) = shares * price

So, here's what the transaction looks like in gnucash:

Transaction #1 - buy 10 shares of MF @ $5
      shares  price   credit    debit  share-balance
MF      10     5                 50      50
cash                             50

Transaction #2 - sell 5 shares of MF @ $3
      shares  price   credit    debit  share-balance
MF      5      3        15               25
cash                             15

If I try to change the MF split in the above
transaction so that the credit is 25 (allowing me to
add a split for the loss expense account with a $10
debit, a dialog pops up forcing me to change either
the shares, price, or credit amount.

Errol

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