Stocks and Balancing Accounts

[Charles Day]

On Sun, Jun 15, 2008 at 10:45 AM, Daniel Carrera <daniel.carrera at zmsl.com>
wrote:

> Charles Day wrote:
>
>> If you then add a price of $1050 to the price editor, to reflect the
>> current price, then reporting ought to show a total value of $1050 per share
>> with $50 per share being an "unrealized gain".
>>
>
> That's not what I saw when I did a "trial balance". You are talkig about
> the "advanced portfolio report". I'm not familiar with this feature, and it
> might be that this one does recognize cap gains and loses. But the trial
> balance sure doesn't.
>

Off the top of my head, I don't think the trial balance report pays any
attention to what's in the price editor. The current price of a security
doesn't matter. Only what was actually recorded in debits and credits.
Assuming the report is correct, I suspect that you must have put the books
out of balance somewhere by forgetting to put in the capital gains or loss
on a sale of securities or foreign currency. I don't know any other way to
put GnuCash out of balance.

Can anyone else confirm this? The trial balance report doesn't use the price
editor, correct?

Perhaps you imported a sale? The importers don't record the capital gain or
loss, so they can definitely put the books out of balance.

I just tried the "advanced portfolio report" feature, just out of curiosity
> to see what it does. It doesn't seem to do anything. It shows 0.00 in every
> column.
>

Do you have any prices in the price editor?

To keep the books in balance, you just have to make sure that when you sell
> any quantity of securities or foreign currency that you account for capital
> gains or losses in your "home" currency (USD in your example). There is an
> explanation of how to do this for stocks in the documentation (which applies
> equally to currencies).
>
> You mean this: http://svn.gnucash.org/docs/guide/invest-sell1.html ?
>
> Ok, let's see what this page says.
>
> (1) I buy 10 units of IBM for $1000. I record a simple transaction that
> removes $1000 from Bank::MyBank and puts 10 IBM in Stock::IBM.
>
> (2) Later I sell my 10 IBM for $1050. In GnuCash I enter a SPLIT
> TRANSACTION that puts $1050 in Bank::MyBank, removes 10 IBM from Stock::IBM,
> and takes $50 from Income::CapGains.
>
>
> This sounds good for this simple example. But I fear that in practise it
> won't work. Suppose I buy stock every quarter for 5 years, and then I sell
> half of my position. What would you put down for cap gains? The stocks were
> bought at various different prices.
>

Depending on the method, you may have to calculate the gain by hand. :(

There are a number of different methods for calculating capital gains
(average cost, FIFO, LIFO, specific lots, etc.)  I use whichever method
creates the smallest tax liability. The important thing is that, whatever
the gain, you record it like you see in lines 3 and 4 of the example in
table 8.2.  (As an aside, assuming that I sold half of a position for a gain
this year, and I had no losses to offset, I would probably use the specific
lots method and pick those lots that were the most expensive when I
purchased them - thus minimizing the capital gain.)

In a similar way, this system is unfeasible for multiple currencies. I have
> money in CAD, USD, GBP and EUR. I have made many transactions in all four
> currencies.


That may be why your books are out of balance.


> I can't be expected to keep track of capital gains and loses entirely by
> hand, which is effectively what this method is proposing.
>

Unfortunately, GnuCash is not very helpful in this area.  As an alternative
method to what you have already seen, you could take a look at this:
http://www.mscs.dal.ca/~selinger/accounting/tutorial.html

Cheers,
Charles

Daniel.
>