Questions About Investment Accounts

[Ian Konen]

On Fri, Apr 5, 2013 at 9:43 AM, Mark Phillips <mark at phillipsmarketing.biz>wrote:

> I want to track the changes in an investment account that I have with a
> broker. I don't want to track individual stocks or transactions, just the
> net end of the month changes. I don't receive any income from this account;
> all the cash it generates stays in the fund.
>
> I got as far as creating the Asset:investment account and an entry in
> Equity:opening balances to set up the account as of 1/113. The statement
> for Jan 31 has these entries
> Beginning Value                xxxxxx
> Additions and Withdrawals         (xx)
> Income                          xxxxx
> Taxes, Fees, and Expenses        0.00
> Change in Investment value      xxxxx
> Ending Value                   xxxxxx
>
> How do I enter these values into gnucash? I don't think I should have an
> expense account for Additions and Withdrawals or an Income account for
> Income, as these transactions never leave this account. I am really just
> interested in see the net change in this account on my balance sheet, and
> not have the expenses and income go through my income statement. Would all
> the offsetting entries be to some equity account? I think I am really
> missing an important concept here.
>
> Thanks,
>
> Mark
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Yes you are making a fundamental error: The accounting equation is a
mathematical identity and the growth in value of an asset has to come from
somewhere.  For a business, it can come from the sale of shares and that
would be an equity source, but you cannot sell equity in yourself the way a
business can (and even if you could, that's not what is going on when an
investment asset appreciates in value...that is income whether it's taxed
this year or not).  Equity:opening balance should represent your net worth
right before the date your GnuCash file begins (you can oddly think of it
as a transfer of all your assets from the 2012 you to the 2013 you if you
start your books in 2013.  Obviously you're still you and there was no
literal transfer, but it helps explain why the opening balances account
shows a negative balance if you've got a positive net worth.  2012 you lost
all that value when you handed your assets and liabilities over to 2013
you! :-)) .  After you start your GnuCash file, you can really only
increase your net worth through income...sales of goods of services, or
asset appreciation.

I think in your case the easiest way to use the statement from your broker
would be to create matching accounts for those categories as expense and
income accounts (but not additions and withdrawals...those you would handle
with transfers to and from another bank account in your books.).  Seems
like the broker's "income" line should represent reinvested dividends and
interest, while "Change in Investment value" would be like asset
appreciation or unrealized capital gains, but regardless of their origin,
if they change the value of the investment without you needing to buy or
sell shares, they are incomes or expenses.  It is also probably true that
the "Change in investment value" will have some positive and some negative
months, so it might seem weird to just classify it as only one of income or
expense, but I don't think that causes any real accounting problems (on
month to month basis, an income account can be a source or a sink of you
funds...it's only when you start worrying about tax implications that you
have to really pay attention to the non-symmetric treatment of losses and
gains).

As for keeping the income separate from your "normal" income sources, you
can select individual accounts for inclusion / exclusion from standard
reports with the options dialog, but I don't know how to modify the
defaults, so every month you'll have to deselect them again (I suspect
there is a way to do it and I just haven't found it yet...).  Using parent
and placeholder accounts makes it easier to select and unselect whole
categories of accounts in those dialogs.
-- 
Ian Konen
iankonen at gmail.com
www.linkedin.com/in/iankonen
978-821-6498