Stock Price / Exchange Rates Used while Closing Book

Mike or Penny Novack stepbystepfarm at mtdata.com
Sun Apr 17 14:31:54 EDT 2011


David Carlson wrote:

>On 4/16/2011 9:58 AM, David T. wrote:
>  
>
>>The Close Book function in Gnucash closes the books on expense and income accounts only. It does nothing with unrealized gains, which from an accounting perspective, don't exist.
>>
>>David
>>
>>    
>>
>Some of us may be wondering why GnuCash (among others) can report
>unrealized gains if they do not exist.  Truth be told, they do exist,
>but they represent someone's estimate of what the asset could be sold
>for.  In the stock market, this is represented by the "Bid" price. 
>Accountants usually (and legally) ignore unrealized gains because they
>do not want to pay tax on them.
>  
>
Misunderstanding the issue.

It's a matter of whether books being kept "cash basis" or "accrual 
basis" and this is not always a free choice. Under certain circumstances 
might be required to use one or the other. Gnucash has to be able to 
support both.

If books being kept on a "cash" basis then yes, ignore and need not pay 
taxes on these gains that have not yet been actualized. They aren't 
income YET.
If books being kept on an "accrual" basis then unrealized gains are 
current income and you pay tax on them but later if the expected profit 
does not materialize may take a loss (and deduct from taxes then).

It is generally simpler to do "cash" so you do if allowed but some sorts 
of businesses are required to do "accrual". Possibly individuals might 
be required to do so too depending on financial activities.

Michael D Novack, FLMI


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