Help with transactions for sale of stock

Thu Apr 28 22:56:11 EDT 2016

OK, I think I am beginning to understand.  It seems that I had crossed accounting concepts with US taxation concepts and thrown in a little brokerage terminology.  So let me see if I have this straight now.

1) The Profit for this transaction is the difference between the selling price and the purchase price, without commissions.  This is not the same as what I would usually consider 'my profit' (or as you called my net profit), nor is it the same as the Realized Gain from the Advanced Portfolio report.

2) The Income: Cap Gain (Long) is not the same as what is reported on the 1099 at the end of the year nor is it  the taxable gain.

I guess when I read the tutorial, my preconceived ideas of these concepts kept me from truly understanding what it was saying.

Thank you, I truly appreciate your help.
Pam

--------------------------------------------
On Wed, 4/27/16, David Carlson <david.carlson.417 at gmail.com> wrote:

  Pam,

 "Lots" is a
 murky subject in GnuCash.  In the old days, ie in the 2.4.x
 series of releases (I think) the 'Lots" feature
 existed in GnuCash but it did not work very well and was not
 understood by most of us.

 More recently, as David T alluded to, it
 has been improved, but I am old school and I am not
 convinced yet.  As you noticed, It still has escaped being
 documented in the help manuals.

 Regarding the apparent discrepancy in profit.
 The $1525 profit figure in that example is the net profit
 that you 
 expect to report to your taxing authority, and it is
 different from the 
 $1600 difference between the amount that was originally paid
 for the 
 Amazon stock and the amount received in the sale. If we have
 chosen to track expenses such as commissions separately, 
 they get lines in the opening and closing transactions so
 that the 
 balances of the brokerage account and the security account
 remain 
 correct.  Many of us are lazy and we just lump commissions
 into the cost and profit figures, and that works in some
 cases, but the value of the security account will be
 incorrect after the sale and the trial balance report will
 be incorrect, if it matters to you.

 David T also pointed out while I was
 composing this reply that there is, in fact a discrepancy in
 the tutorial that should be clarified.

 In GnuCash we track
 the value of securities and expenses, income and capital 
 gains separately.  We tie the various parts together in the
 sale or 
 closing transaction by reducing the value of the security
 and increasing
  the capital gain if we sell at a profit.  

 The examples in the help
 manual do not explain the importance of correctly tracking
 the value of securities in GnuCash.  When you purchase a
 security you are exchanging a certain amount of your
 currency for a certain amount of the security.  Then, to
 keep things in balance for your trial balance report, when
 you exchange back the security for your currency, you need
 to assign the original amount to the security account and
 the balance (profit, hopefully) to an income account.  That
 part does not happen automatically, it must be entered
 manually as part of the sale transaction.  It is easy when
 you buy or sell all of the security at once, but lots come
 into play when you have multiple purchases or sales.  The
 general idea is to match the correct value (cost) to the
 correct number of shares in the security account and to end
 up with zero value in the security account at the same time
 that there is zero shares.

 That is why we pay our accountants and
 brokers big bucks.

 Hope that helps.

 David C

 On Wed, Apr 27, 2016 at
 10:02 AM, hppweu <hppweu at frontier.com>
 wrote:
 David
 & David,

 Thanks for your replies.  I have seen that statement made
 in other threads, that "GnuCash does not automatically
 calculate your net capital gains".  I thought that I
 understood was being said,and always told myself that I was
 not asking GC to calculate my gain.  I tell GC what the
 gain is through the split transaction, when I enter the
 Profit and the Cap Gain.  So, there must be so aspect of
 the stock transaction that I am not understanding.

 I think that I completely understand the concept of stock
 lots.  When I sell, I can go online to my brokerage account
 and get a detailed realized gain/ loss, which lists each
 date of purchase, sale, quantity, cost basis, proceeds, etc.
 Which in my case details the dividends that I reinvest to
 purchase additional partial shares.

 I do not understand the "Lots" functionality in GC
 and don't find it covered in the help files.  But I
 don't 'think' that I need to use it, since all
 of my sales are FIFO.

 As I said earlier, I tried to break things down, and work
 with a simple transaction.  I tried to follow the example
 of the sale of the Amazon stock from the Tutorial and
 Concepts Guide. In one place they use  Profit = $1525 and
 in another they use $1600.  Is there an error in that
 example or am missing something?

 Thanks so much for your help,

 Pam

 On Wednesday, April 27, 2016 9:36 AM, David T. <sunfish62 at yahoo.com>
 wrote:

  David C.,

 While your comments are true in general, I have found in
 recent experiments that the Scrub Lots feature can provide
 accurate gains data, and at the least provide a good point
 from which to build.

 The situation I have found that results in accurate gains
 being entered is if there is a sale of an entire mutual fund
 holding for which there is no commission charged. In this
 situation, the result is a gain transaction that matches my
 brokerage statement on gains.

 I have hesitated to try the feature on more complex
 situations (e.g., stocks which have multiple lots, stocks
 which have changed their basis due to splits or spinoffs,
 etc.), since I receive gains information from my brokerage.
 It is easier overall for me to manually enter the gains
 information based on what the brokerage experts tell me, so
 that’s what I do.

 Cheers,

 David T.

 > On Apr 24, 2016, at 11:40 AM, david.carlson.417 at gmail.com
 wrote:

 >    Pam,

 > You have found out that GnuCash does not automatically
 calculate your net capital gains that you with your brokers
 help must report to your taxing authorities.

 > The main reason for this is that there is not a
 "one size fits all" formula to calculate that. 
 To do it accurately you need to be tracking 'lots'
 to determine whether the gain or loss is short term or long
 term according to the instructions that you gave to your
 broker before the sale as well as knowing the exact rules
 where you live.

 > Many of us use a separate spreadsheet to make those
 calculations or rely on our broker and/or accountant for
 those numbers.

 > I use the method that results in a correct trial
 balance within GnuCash but I think some users use the other
 method.

 > David C

 > ------ Original message------From: hppweuDate: Fri, Apr
 22, 2016 12:06 PMTo: gnucash-user at gnucash.org;Subject:Help
 with transactions for sale of stock

 > The problem I am having is with entering stock
 transactions so that the debit & credits are equal on
 the trial balance report and the capital gain matches what
 is reported. on my brokerage statements.I am new to this
 list, but have been using GC for about 1 1/2 yrs. I have
 read all of the documentation and have searched this list
 for a similar thread.  I started my books at the beginning
 of last year, entering all of my personal finances,
 including all transactions from my brokerage account.  All
 of my gains, losses, cost basis, etc. match my brokerage
 statements.  The problem is that the debit and credit are
 not equal on my trial balance report. In order to check that
 my methodology was not faulty, I started with a new file and
 followed the the examples in Chapter 8 - Investments, in the
 tutorial and concepts guide.  In stepping through it very
 carefully, I have found that there is an inconsistency in
 the: Example - Sale of stock with profit.  The text in the
 paragraph does not use the same values for profit as what is
 shown in Table 8.2  and and the screenshot immediately
 after it. In the text it states   . . . and finally PROFIT
 is $1525 (GROSS_SALE - TOTALBUY - COMMISSION).In the table
 and the screenshot, the value $1600 is used.The difference
 between the two values is whether the $75 commission is
 included in the profit calculation.If I follow the example
 using a profit of $1,525, I get the following results:   
 The Trial Balance report shows the debit total = $13,675.24
 and credit total = $13,600.24 (a difference of $75)    The
 Advanced Portfolio report shows a Realized Gain = $1,525 and
 Total Return = $1,525    The Income:Cap Gain (Long):AMZN =
 $1,525When I follow the example using a profit of $1600, I
 get the following results:    The Trial Balance report
 shows the debit total = credit total    The Advanced
 Portfolio report shows a Realized Gain = $1,525 and Total
 Return = $1,525    The Income:Cap Gain (Long):AMZN =
 $1,600So if I include the commission expense in my profit
 calculation, my Income:Cap Gain (Long):AMZN account will
 agree with what gets reported by my brokerage statement and
 with what is on the advanced portfolio report, BUT my trial
 balance report WILL NOT balance.And if don't include the
 commission in my profit calculation, my Income:Cap Gain
 (Long):AMZN account WILL NOT agree with what gets reported
 by my brokerage statement and with what is on the advanced
 portfolio report, but my trail balance report will
 balance.Could anyone offer advice about what I am thinking
 or doing wrong?Thanks in
 advance,Pam