Questions About Investment Accounts

Fri Apr 5 21:52:44 EDT 2013

On Fri, Apr 5, 2013 at 5:28 PM, Mark Phillips <mark at phillipsmarketing.biz>wrote:

> Ian,
>
> How does this look as a way to handle this account. Upon further
> investigation, I discovered that this account is a mutual fund with a cash
> balance, equities, and bonds, and that my mom is able, and has been,
> writing checks against this account. (I have had to take over my mom's
> financial activities as she is currently under hospice care, so I am slowly
> discovering what she has been doing these past 87 years....). I will call
> her brokerage account Mcapital.
>
> To set it up:
> Asset:Investments:MCapital = beginning value as of 1/1/13
> Equity:Opening balances = beginning value as of 1/1/13
>
> From the January statement:
>
> Asset:Investments:MCapital = $90 (a check she wrote to her hair dresser -
> the amount under Additions and Withdrawls)
> Expenses:Hair Styling = $90
>
> Asset:Investments:MCapital = $121 (Income line from her statement - the
> dividends reinvested into the account)
> Income:Other Income:Mcapital - $121
>
> Asset:Investments:MCapital  = $3,000 (the change in investment value line
> in her statement)
> Income:Other Income:Mcapital - $3,000
>
> This leaves the value of the Mcapital the same as shown on her statement
> for 1/31/13.
>
> When I run an income/expenses report for my siblings, I will leave out the
> Income:Other Income:Mcapital account. The balance sheet will reflect the
> increase/decrease in the value of the fund, and the income/expenses will
> show the financial activity of her primary checking account. I think adding
> the income activity from Mcapital will be misleading because that income is
> reflected on her balance sheet. However, this violates the fundamental
> accounting equation, so what would you recommend?
>
> Thanks for helping me think through these issues!!
>
> Mark
>
>
Hey Mark,

I think the transactions you described all make sense and agree with how I
was thinking about the situation.  I don't really know why you don't want
to include the "change in value" income as part of the report unless it's
just the name that sounds fishy.  It shouldn't sound fishy; it's how
the brokerage is labeling the combined effect of share price changes in the
individual funds in the account.  It might seem fishier for this month's
balance sheet to be show a higher value than last months without an
explanation.

You should note Derek's answer too though.  I was wrong about the
impossibility of seeing a net worth change without a transaction involving
income or expense accounts:  If you set up a stock account based on shares
rather than dollar value, GnuCash can update asset values as the share
prices change.  It's a bit more complicated than the above method and I
don't know if it's worth the trouble here, but I think you could, even if
it just meant you updated share prices for individual funds each month from
the brokerage statement (they're probably in that statement somewhere).
 You might want to read what the tutorial (Chapter 8. investments) says
about it.  It's got a pretty thorough explanation and example of how to
handle stock purchases and value changes.

It does seems like one could make a profit buying low and selling high
without GnuCash showing any activity in "income" accounts, but I guess that
lack of activity does not necessarily mean one is claiming there is no
income in that process, just that it isn't handled by account transactions.
 (The IRS certainly calls that income!)

Sorry about your mom.  Hospice does good work.

>
> On Fri, Apr 5, 2013 at 8:48 AM, Ian Konen <iankonen at gmail.com> wrote:
>
>> 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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>> > -----
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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
>> _______________________________________________
>> gnucash-user mailing list
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>> https://lists.gnucash.org/mailman/listinfo/gnucash-user
>> -----
>> Please remember to CC this list on all your replies.
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>>
>
>

-- 
Ian Konen
iankonen at gmail.com
www.linkedin.com/in/iankonen
978-821-6498