Question About Investments

Mark Phillips mark at phillipsmarketing.biz
Fri Jul 5 19:54:34 EDT 2013 

Buddha,

It makes sense. I see where I was making the mistake with the actual checks
from the one investment account. When I started this job, I did not have
these accounts in gnucash, so I just deposited the checks in the checking
account and accounted for it as investment income. I later added the asset
accounts for the funds, but tripped myself up on how to account for the
checks from the funds.

The Taxes, Fees and Expenses item on the statements occur very
infrequently, as well as most of the other entries. Usually there is just a
change in market value and income. Could I just incorporate all the line
items on the statement into the Investment income account as additions or
subtractions and call it Net Investment Income? Since everyone has a copy
of the actual portfolio statement, they can see the details there. I just
want to account for the net change in the portfolios asset value and I need
a way to balance out the transactions that change the portfolio value.
Perhaps I am being too simplistic in my thinking.

Although, it does seem strange to have changes in market value reflected in
an income account since they are unrealized and should not really impact
the income statement. Shouldn't that be some sort of negative asset account
as an offset to the value in the Fund Asset account to show these market
swings? Now my head hurts again....;)

Your thoughts?

Thanks!

Mark


On Fri, Jul 5, 2013 at 7:43 AM, Buddha Buck <blaisepascal at gmail.com> wrote:

> Income and Expense accounts don't show up on the balance sheet, except as
> the "Retained Earnings" line under equities.
>
> In this case, I would actually have accounts for:
>
> Assets:Checking
> Assets:Fund A
> Assets:Fund B
> Income:Investment
> Expense:Taxes,Fees
>
> I would record, for the statement for Fund A (unless there was a need to
> go into more detail)
> 1) A transfer of $237 from Assets:Fund A to Assets:Checking
> 2) A transfer of $289 from Income:Investment to Assets:Fund A
> 2) A transfer of -$6,567 from Income:Investment to Assets:Fund A
>
> That should account for everything you want.  The cash withdrawal isn't
> "income", it's a shift of value from one asset (Fund A) to another
> (Checking).  The Income and Distributions line is recorded as income, and
> the change in market value is recorded as negative income.  This could even
> be done in a single split transaction, although I would be highly tempted
> to record the $237 withdrawal separately, and on the date it happened,
> rather than part of the monthly statement.
>
> For Fund B, I would do similar:
>
> 1) A transfer of $34 from Assets:Checking to Assets:Fund B
> 2) A transfer of $131.38 from Income:Investment to Assets:Fund B
> 3) A transfer of $56 from Assets:Fund B to Expense:Taxes,Fees
> 4) A transfer of -$4419.35 from Income:Investment to Assets:Fund B
>
> Like before, I would be highly tempted to separate the $34 deposit so that
> it could be recorded on the date it happened, rather than part of a monthly
> statement split transaction.
>
> Does this make sense to you?
>
>
>
>
> On Fri, Jul 5, 2013 at 10:14 AM, Mark Phillips <mark at phillipsmarketing.biz
> > wrote:
>
>> David,
>>
>> Thanks for your reply. I am trustee for my mother's estate, and I am using
>> gnucash to track her estate financial health and report monthly balance
>> sheet and income statements to the other beneficiaries to her estate (my
>> two sisters). My mom's accountant does not use gnucash and relies on paper
>> statements, so this is not for tax purposes.
>>
>> For example, one of her statements has the following summary, which is
>> what
>> I am trying to capture in gnucash:
>> ***Fund A***
>> Total Assets - Beginning Balance    $ 100,000.00
>> Cash Deposits
>> Cash Withdrawals                         -237.00
>> Income and Distributions                  289.00
>> Other Transactions
>> Change in Market Value*                 -6.567.00
>> Total Assets - May 31, 2013         $   93,485.00
>>
>> And the other account provides this:
>> ***Fund B***
>> CHANGE IN ACCOUNT VALUE             Current Period
>> BEGINNING VALUE                     $104,876.64
>> Additions and Withdrawals                $34.00
>> Income                                  $131.38
>> Taxes, Fees and Expenses                 $56.00
>> Change in Investment Value           ($4,419.35)
>> ENDING VALUE (AS OF 05/31/13)       $100,566.67
>>
>> I want to show the current value of the asset in her monthly balance
>> sheet,
>> but not to account for all the details of how the balance changed. The
>> other beneficiaries also have a copy of the monthly statements from the
>> financial institutions for these funds, so they can use that to see the
>> details if they want to.
>>
>> I have been "dumping" all the changes (positive and negative values) into
>> an income account called "change in market value" for these assets, and I
>> have an asset account that shows the current value at the end of the month
>> for each fund. I don't have a separate expense account for losses, I just
>> put all the values into one income account.  Is this correct, or is there
>> a
>> better way?
>>
>> For Fund A, the Cash Withdrawals are actually sent to her as a check, so I
>> just use her checking account to receive the money and another income
>> account (not the change in market value) to balance the transaction.
>>
>> Am I on shaky ground here?
>>
>> Thanks,
>>
>> Mark
>>
>>
>> On Thu, Jul 4, 2013 at 11:34 PM, David Cousens <davidcousens at bigpond.com
>> >wrote:
>>
>> > Mark,
>> >
>> >
>> >
>> > Mark is your accounting primarily for tax purposes , to provide
>> evidence of
>> > the value of the assets, or simply to monitor the current value of the
>> > investment.
>> >
>> >
>> >
>> > The standard approaches are based either using a historical value for
>> the
>> > asset at the time of purchase and, as any gains are unrealised until the
>> > asset is sold, not taking them into account until such time as the
>> assets
>> > are sold
>> >
>> > or
>> >
>> > using a market based valuation as you suggest treating the unrealised
>> gains
>> > as income. You would presumably to treat capital losses as expenditure
>> >
>> > in this case.  One could use contra accounts to record such increases
>> and
>> > losses so that the record of historical value and the current value is
>> > maintained in the same way you use a contra account to record
>> depreciation.
>> >
>> >
>> >
>> > Alternatively, one can use a market based approach as you suggest,
>> treating
>> > the gains as income. There are serious implications of the use of either
>> > approach, for example, see
>> >
>> >
>> http://issuu.com/corinda/docs/accounting_treatment_of_unrealised_capital_gai
>> > ns for some discussion which will depend upon the legal jurisdiction in
>> > which you carry on your business and the specifics of the law in that
>> > jurisdiction re tax, inheritance, etc.
>> >
>> >
>> >
>> >
>> >
>> > Dr David R Cousens B. Sc., M. Prof. Acc., Ph. D.
>> >
>> > Email: davidcousens at bigpond.com
>> >
>> > Mobile 0420847319
>> >
>> >
>> >
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