Exchange rate changes lead to imbalance

[Charles Day]

On Sat, Aug 29, 2009 at 5:49 PM, Derek Atkins <warlord at mit.edu> wrote:

> Mike Alexander <mta at umich.edu> writes:
>
> > --On August 28, 2009 4:46:42 AM -0700 Dolfy <d01fy at yahoo.com> wrote:
> >
> >> Hello,
> >>
> >> Ver. 2.2.6
> >>
> >> If you have multi-currencies or have stocks on your balance sheet,
> >> and their daily rate changes, the balance-sheet will go out of
> >> balance. Example:
> >>
> >> I have 1 Eur only, and my B/S is in HUF currency.
> >>
> >> Assets:   HUF 280
> >>    EUR:   EUR   1
> >> Equity:   HUF 280
> >>
> >> Now if the exchance rate changes from 1 EUR=280 HUF to 1 EUR=290HUF,
> >> I will have
> >>
> >> Assets:  HUF 290
> >>    EUR:  EUR   1
> >> Equity:  HUF 280
> >>
> >> which is clearly out of balance. Same with stocks and other
> >> commodities. Maybe some balancing transactions had to be introduced
> >> to handle this properly...
> >
> > This is probably because of the issues described at
> > <http://www.mathstat.dal.ca/~selinger/accounting/tutorial.html> and
> > <http://www.mathstat.dal.ca/~selinger/accounting/gnucash.html>.  I've
> > implemented some of the suggestions in the latter document, but the
> > patch has never become part of the official Gnucash and is now
> > somewhat out of date.
>
> Actually I'm not sure /this/ issue is related.  The issue here is that
> you have 1 EUR and you're trying to determine how many HUF that 1 EUR is
> worth.  But you bought that 1 EUR for 280 HUF, and now it's worth 290
> HUF.  So you have an unrealized gain of 10HUF.
>
> Mr. Selinger doesn't handle unrealized gains at all...  This particular
> issue does fall through the cracks there.
>

I don't think so. Mr. Selinger's method essentially fences off each currency
as a separate set of "sub-books" on your books. All gains are computable by
the difference in trading account balances, i.e. equity out of one set of
sub-books and into another. Whether the computed gain is realized or
unrealized is the user's problem to sort out, since GnuCash doesn't help
with that computation. One must still remember to reclassify unrealized
gains (equity) as realized gains (income) when selling something for a gain,
or else they'll become mixed. Same in GnuCash, except the books can't get
out of balance when you forget to do so.


> I suspect that the issue here has fallen through the cracks of the reports.
>
> >       Mike
>
> > Please remember to CC this list on all your replies.
> > You can do this by using Reply-To-List or Reply-All.
>
> -derek
>
> --
>       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
>

-Charles