Did I set this up correctly - house with negative equity

Jeremy Miller qatman at gmail.com
Sun Dec 13 02:22:46 EST 2009


On Sat, Dec 12, 2009 at 21:32, Alex Zuroff <azuroff at gmail.com> wrote:

>
> I have the following accounts set up:
>
> Assets:Fixed Assets:House:Cost
> Assets:Fixed Assets:House:Unrealized Gain
> Income:Unrealized Gains
>
> Is this the correct approach to take even when our house is upside-down?
>

This is how I handle the situation for marketable securities (stocks, bonds,
etc.).

Record the house purchase:
Assets:Fixed Assets:House:Cost   Debit $300K
Equity:Opening Balance  Credit $300K

Record the initial value at GNUcash setup:
Equity:Unrealized Gain or Loss on Investments: Debit $50K
Assets:Fixed Assets:House:Unrealized Gain  Credit $50K

Now your total value for House is $250K and your total value for Equity is
$250K.

If you want to mark-to-market at a later date, this is usually done directly
to the Equity:Unrealized Gain or Loss on Investments account.  Suppose at
year-end 2009 you want to update the house value to $275K.  Then the entry
would be

Assets:Fixed Assets:House:Unrealized Gain  Debit $25K
Equity:Unrealized Gain or Loss on Investments: Credit $25K

leaving House at $275K and Equity at $275K.

Suppose you then sell the house for $325K.  I prefer to do this in three
steps: mark-to-market, sale, and reclassify previously unrealized capital
gains. The entries would be

Mark-to-Market
Assets:Fixed Assets:House:Unrealized Gain  Debit $50K
Equity:Unrealized Gain or Loss on Investments   Credit $50K

leaving balances of House $325K and Equity $325K

Sale of House
Assets:Cash  Debit $325K
Assets:Fixed Assets:House:Cost  Credit $300K
Assets:Fixed Assets:House:Unrealized Gain  Credit $25K

leaving balances of House $0K, Eq:Opening Balance $300K, Eq:Unrealized Gain
$25K

Reclassify Previously Unrealized Capital Gains
Equity:Unrealized Gain or Loss on Investments   Debit $25K
Income:Realized Capital Gain  Credit $25K

So in the end you have Cash $325K DR, Eq:Opening Balance $300K CR, and
Income:Realized CG $25K CR.  At the end of the year when you close the
books, the income will get closed to Retained Earnings.

Jeremy


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