accounting for managed investment accounts

[John Ralls]

On Apr 28, 2014, at 12:33 AM, gnucash.133518b at telus.net wrote:

> Imagine I have a real-world personalized professionally-managed investment account of the sort often referred to in Canada as a "managed account" or "discretionary account". I am not consulted on the buying and selling of the assets and cash within the account. As this is not a mutual fund, my external transactions with this account are in dollars, not shares. Similarly, my tax consequences relate to external transactions with this account, not transactions that are internal to the account.
> 
> I want to add a corresponding investment account created in my GnuCash book, but how do I do this? I don't think I can use either of the "stock" or "mutual fund" account types because those appear to be strictly denominated in share units. The number of different assets in the managed account are too many and too often changing for me to want to try tracking them individually in GnuCash and the whole point of such an account is to manage it as a (more or less) black box.
> 
> After reading Peter Selinger's well-known "Tutorial on multiple currency accounting" as well as "8.7 Selling Shares" in the GnuCash Tutorial and Concepts Guide I have a very tenuous understanding that realized gains/losses need to be accounted for with investment accounts. It is not clear to me from my reading why it is that when tracking individual stocks that one must always manually calculate and enter profits for individual stock sale transactions such that they are sourced by an Income:Capital Gains account but that this does not also apply to currency exchange transactions. Assuming someone can tell me how I can even implement my managed account in GnuCash, how do I account for its realized gains?
> 
> For unrelated reasons I will have trading accounts enabled. How does this changes things, if at all?
> 
> I also have a variety of loose investment assets within a real-world portfolio account I manage on my own. I am not yet sure that I want to track those individually as stocks in GnuCash either, but I at least need to account for them as a group, so I think this would be pretty much the same thing as the managed account. It seems to me this would be an approach that a lot of people would go for if someone could give us an easy-to-understand description of how to accomplish this sort of thing correctly.
> 
> In case it wasn't already painfully obvious, keep in mind that I am totally new to GnuCash and accounting concepts in general.
> 

I started to reply, but decided to wait to see of one of the more accounting-savvy users would chime in first. Since no one has, here goes:

First of all, Stock and Mutual Fund account types differ only in name. They behave exactly the same. I'm just going to say "stock" from now on, meaning both. Second, the only differences between Stock accounts and everything else is that only Stock accounts have non-currency commodities, and that in register view they display the otherwise-hidden price cell. The latter means that they don't need to display the transfer dialog box for entering prices; instead, if the value-price-amount doesn't balance, they'll ask you which one you want to change.

How to deal with your managed account depends upon how it's reported to you and how you have to report taxes:
* Does the manager report that you have n shares or units, or do they report the currency value?
* How do they report fluctuations in value? Do you have to report those fluctuations for taxes?
* Do they pay dividends?
* When you add to or subtract from the account, how is that reflected in the statement? How is redemption handled for taxes?

You can certainly treat it as a bank account which pays into or deducts from both an ordinary income and a capital gains account. You can do the same for your brokerage account if you really want to. You'll lose some detail and the ability to value the portfolio with prices, and perhaps have to do more work outside of GnuCash for things like computing capital gains or losses when you sell stock.

Regards,
John Ralls