Stock Price / Exchange Rates Used while Closing Book

John Ralls jralls at ceridwen.us
Sun Apr 17 15:27:32 EDT 2011


On Apr 17, 2011, at 11:31 AM, Mike or Penny Novack wrote:

> 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.

I don't think that's correct. "Accrual" vs. "Cash" accounting refers to when you book income and expense: Accrual if you book it when you issue the invoice or receive the bill, cash if you book it when you're paid or when you pay.

I think that you're thinking of "Trading Securities"[1], and I doubt that anyone using Gnucash would be subject to those rules -- but I'm not an accountant. Doubtless one will come along and set us straight on the matter.

[1] http://www.principlesofaccounting.com/chapter6/chapter6.html#Accounting

Regards,
John Ralls



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