Problem creating a "Currency" account.

[Charles Day]

On Sat, Jun 28, 2008 at 10:41 AM, Mike or Penny Novack <
stepbystepfarm at mtdata.com> wrote:

>
> >I think Charles made a strong argument that these accounts should be
> >income after all. If we use commodity accounts like Commodity:USD and
> >Commodity:Gold and the parent account "Commodity" is of type income,
> >then capital gains and loses due to changes in the price of gold will be
> >coming from an income account, which makes a lot of sense.
> >
> >Daniel.
> >
> >
> We're dealing with "Accounting 101" type questions here, not GnuCash
> questions.
>
> a) Income and Expense type accounts are temporary accounts. Their actual
> fundamental type is equity (at the end of the accounting period they are
> closed to one side or the other of the equity ledger at the close of the
> accounting period). The reason for keeping these temporary accounts open
> during the accounting period is to make analysis of business operations
> easier, and net gain/loss is of particular interest.
>
> b) Income doesn't come FROM an account of type "income".
>

Was there some part of the earlier discussion that violated (a) or (b)?  If
so, could you point it out?


> c) If paid "in kind" instead of in legal currency, the accounting/tax
> laws of your jurisdiction will determine how that it to be reported.


That's just a reporting issue though, not an issue of how the facts get
recorded. Using trading accounts doesn't stop you from producing the same
reports.

There are some significant exceptions (where what you receieved might
> not even be considered income of any sort -- though the fact that you
> got these "precs" might be a major factor in your accepting the job --
> this is neither the time nor place to discuss these exceptions beyond
> pointing out that generally they are "percs" you are REQUIRED to use and
> which are of significant benefit to your employer*). But in general what
> you receive gets recorded as IF you had received legal tender in the
> amount of the "fair market value" of the goods,r commodity, or services.


What you say is true in general; people don't usually even have a need to
record income in terms of non-currencies. That doesn't mean it can't be done
that way. Recording the value of the shares/goods/services/whatever you
receive can be done by recording the currency value, as you suggest, or by
recording the inventory received along with an exchange rate. They are
mathematically equal.


> In the case of an asset like gold, sort of as if you had been paid in
> money (income) and then immediately went out and bought gold with that
> (asset). Obviously had you been paid with a side of beef, you wouldn't
> hold that as an asset.
>

That's an issue of scale. Just to play devil's advocate, metric tonnes of
beef might be a different story.

-Charles

   So with the orinal example (whether that was gold or a stock) you
> record the legally specified value as income and the same amount as the
> basis price of the asset. When you later dispose of the asset, you might
> get more or less for it than this basis and THAT would get recorded as a
> capital gain (long or short term depending on the rules for that asset
> class).
>
> Michael
>
> * Like the "rent free" apartment occupied by the building superintendent
> who is required to not only be on site during working hours but to also
> be available for tennants to knock on his door in the middle of the
> night. Depending on tax laws the value of that free apartment might or
> might not be considered taxable income.
>
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