Realized gains with trading accounts

[Neal Groothuis]

Ah, once I confirmed my email, I was able to edit the FAQ.  I added a few
paragraphs under question 7.10.

On Mon Jan 19 2015 at 1:31:47 PM Neal Groothuis <neal at nealgroothuis.name>
wrote:

> Thanks for the prompt response!
>
> I didn't know about all of the balancing rules, nor the existence of the
> concept of a base currency for a transaction.  The resulting need to create
> splits that have value but no change in quantity to realize gains seems a
> bit perverse (which I believe is what Michael Tsang was getting at in his
> comments on the bug you referenced), but it does have the desired effect,
> so that's good enough for me.
>
> Could this be added to the FAQ on the wiki (or somewhere else easily
> searchable)?  How to realize gains when using trading accounts has popped
> up a number of times on this list.  https://lists.gnucash.org/
> pipermail/gnucash-user/2014-March/053883.html is an example, complete
> with some pretty "clever" workarounds.
>
> On Mon Jan 19 2015 at 12:35:31 PM John Ralls <jralls at ceridwen.us> wrote:
>
>>
>> > On Jan 19, 2015, at 8:24 AM, Neal Groothuis <neal.groothuis at gmail.com>
>> wrote:
>> >
>> > Hello all,
>> >
>> > To address a topic that seems to pop up here with some frequency and yet
>> > never get resolved to people's satisfaction: how do you account for
>> > realized gains if you're using trading accounts?
>> >
>> > First, a workaround that I'm starting to use that seems less clunky than
>> > some others proposed here: create a "realized gains" equity account, and
>> > use that to offset entries into your realized gains income account.
>> >
>> > E.g., if you have an investment account with 4 FOO purchased at USD 250,
>> > and you sell 2 of them at USD 500, the entry automatically created by
>> > GnuCash will have four splits:
>> > -2 FOO from your FOO investment account,
>> > +2 FOO to your FOO trading account,
>> > +1000 USD to your USD cash account, and
>> > -1000 USD to your USD trading account.
>> >
>> > To use my workaround for this, add two more splits:
>> > + 500 USD to your realized gains income account, and
>> > - 500 USD to your realized gains equity account
>> >
>> > WIth this, I believe that your balance sheet will correctly show your
>> > trading gains (realized + unrealized), your total equity, and your
>> retained
>> > earnings (only reflecting realized gains) properly.
>> >
>> > Second, a question/proposal: it seems that Peter Selinger's tutorial on
>> > multicurrency accounting (
>> > http://www.mathstat.dal.ca/~selinger/accounting/tutorial.html) is
>> generally
>> > recognized here as the authoritative document on how GnuCash should use
>> > trading accounts.  In section 5.1 (
>> > http://www.mathstat.dal.ca/~selinger/accounting/tutorial.html#5.1), he
>> > shows a transaction which moves CAD 5000 from the CAD trading account
>> to a
>> > CAD realized gains account.  As far as I can tell, this is impossible in
>> > GnuCash and is the reason that people have to come up with workarounds
>> to
>> > handle realized gains.  Is my understanding correct?  If so, wouldn't
>> this
>> > be a bug?
>>
>> Selinger’s article was the inspiration for creating trading accounts, but
>> Mike Alexander didn’t follow it exactly. You can read the original commit
>> message at https://github.com/Gnucash/gnucash/commit/b578c56b27ce5f9fdb
>> 3479b663c6f392cc91c2e8. The article is a description of how you can use
>> manually created accounts to handle transactions with capital gains and
>> differs somewhat from how GnuCash works with its automatic trading accounts.
>>
>> Notice that Selinger’s example shows only one trading account, while with
>> GnuCash there are always at least 2, one for each currency/commodity
>> involved in the transaction. For booking realized gains in GnuCash,
>> regardless of whether trading accounts are enabled, the splits should be
>> between the asset account (House A or House B in Selinger’s example) and
>> the income account (Income:Realized Gain in the example). This works easily
>> enough when only two commodities/currencies are involved but gets tricky
>> when there are 3 because one needs to take care to ensure that the
>> transaction’s default currency is the one you want. Mike Alexander
>> described the problem and procedure in detail in
>> https://bugzilla.gnome.org/show_bug.cgi?id=742795#c12
>>
>> Regards,
>> John Ralls
>>
>>