mutual fund changes in value

[Derek Atkins]

Short answer: you don't "account" for it -- you just recognize there's
an unrealized gain by setting the new price and the reports will tell
you your holding's value.

-derek

heinrich at rochester.rr.com writes:

> How do I account for changes in mutual fund value? It seems like GnuCash -- via the price-editor -- automatically determines the valuation of a set number of shares. However, this creates problems for me in terms of the accounting equation:
>
> SE = shareholder's equity (my equity)
> A = my assets
> L = my liabilities
> I = my income
> G = my gains
> E = my expenses
> l = my losses
>
> SE = A - L
> SE = A + I + G - L - E - l
>
> Let's say that I buy 2 shares of ABC at $1/share for a total of $2. When I account for this, I credit cash by $2 and debit ABC by $2 (a flow of $2 from cash to ABC)
>
>               Dr.    Cr.
> Cash                 $2
> Asset (ABC)   $2
>
> In the Asset \ Long Term \ ABC account, it shows a debit of $2, to purcahse 2 shares, at $1/share.
>
> By the end of the year, ABC is worth $4/share. So, my 2 shares, instead of being worth $2 (at $1/share), are now worth $4 (at $2/share). GnuCash' price-editor keeps track of this, which is what eventually creates problems. Normally, what I'd do (as my accounting Prof. told me to) is credit unrealized capital gains (an Income/Gain account) by $2, and debit ABC by $2:
>
>               Dr.    Cr.
> Gain (un.cap)        $2
> Asset (ABC)   $2
>
> This means that in total, I have, in my ABC account, 2 shares worth $4, where the basis was $2. I credit the Unrealized Capital Gains ABC account to account for this. Therefore, the accounting equation balances, and I'm fine.
>
> However, in GnuCash, via the price editor, it automatically keeps track of the changes in share value. It determines that ABC shares increased in value from $2 to $4 per share, and correspondingly calculates the value of my ABC account, by multiplying the new price by the number of shares I own. However, the problem here is that this leaves the accounting equation unbalanced, because it does not credit an unrealized capital gains account for ABC. 
>
> Any thoughts on how I can fix this?
>
> My initial thoughts were, that I could just credit an unrealized capital gains account for ABC and then have that money flow into Assets \ Long Term \ ABC to buy no shares (thus, not increasing the value of that account). However, GnuCash forces you to buy shares when you debit a mutual fund account. If I try to debit my mutual fund account by $2, it automatically (no matter what I do), goes to this:
>
> Shares: 2 shares
> Price: $1/share
> Debit: $2
>
> Then it automatically adds 2 shares to my mutual fund account (which it shouldn't do), and figures out the additional (wrong) increase in value, based on the current price multiplied by the extra shares (on top of the already increased price due to increase in value of the same shares).
>
> My only other thought is to create a shell account under Assets \ Long Term \ ABC, like "ABC-000", and have its "shares" be something I've made up (e.g., "000"), to which I've assigned a price of $0 in the indefinate future, so it always assumes that price and does not increase the value of my assets two-fold.   
>
>
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>

-- 
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
       warlord at MIT.EDU                        PGP key available