Trial balance failed!

[Charles Day]

On Jan 25, 2008 5:43 AM, Mike or Penny Novack <stepbystepfarm at mtdata.com> wrote:
>
> >
> >In my opinion, a buying or selling a currency should be handled the
> >same as buying or selling a stock, bond, bar of gold, or any other
> >commodity. If special exchange accounts aren't needed to properly
> >account for stock trades, then they aren't needed to properly account
> >for currency trades either. (Perhaps the author would reply that they
> >*are* needed for stocks, I don't know.)
> >
> >In any case, it seems to me that in order to avoid breaking the trial
> >balance, GnuCash needs to force users to properly account for capital
> >gain/loss entries whenever a trade is done between commodities, be it
> >stocks, currencies, whatever.
> >
> >.02
> >
> >-Charles
> >
> >
> I think it's not so simple -- and that this is an accounting/legal
> question, not a GnuCash question. If you are TRADING in foreign exchange
> as if it were a commodity then yes, your solution answers the question.
> But it's not so simple where you have a business doing business in
> multiple currencies, owing taxes at certain times in various currencies,
> etc. The date at which the gain or loss (one currency relative to
> another) is to be recorded is not necessarily when the original
> transaction took place --- or at least that is far from clear.

I agree those issues should be considered. Additionally, even for
personal investors there are multiple methods of calculating the
capital gains on a currency sale, depending on whether you compute the
basis using average cost, FIFO, LIFO, lots, etc. This functionality
seems to be currently available to stocks but not currencies.

> Before deciding what GnuCash should do need to see how this is normally
> handled in old fashioned pen and ink on paper accounting.

Yes, I'd be interested to see a few different pen and ink methods. The
writeup by Peter Selinger is certainly one way to do it. I'd like to
see how he'd treat realized vs. unrealized capital gains. He's showing
a "Currency" account (really a "Currency Gains" account) whose total
reflects a mix of realized and unrealized gains in all currencies
(only two are shown in the writeup). At some point you'd want to
transfer the realized gains out of this "Currency Gains" account using
your favorite method for computing the basis.

-Charles

>
> Michael
>