Handling investment transactions

[Alton Brantley]

I consider commissions to be prepaid expenses, and so they are an asset.

Here’s a buy, sell, and calculation of net capital gains that I would have in my account

BUY 100 sh XYZ at $100 with $10 brokerage commission
I’m in the U.S.A. so here’s what works for me.


Stock XYZ (stock account) 			DEBIT   100   1000  10,000
Brokerage:Open commissions(asset account)       DEBIT                   10
Brokerage(asset account)                        CREDIT                        10,010

SELL 100 sh XYZ at $120 with $12 brokerage commission

Brokerage (asset account)                       DEBIT               11,988
Brokerage:Open commissions(asset account	DEBIT                   12
Stock XYZ (stock account)                       CREDIT                        12,000



Now, if you run lots on the STOCK XYZ accounts, it creates a new transaction

Realized gain/loss
STOCK XYZ (asset account)                       DEBIT                 2000
Orphaned Gains(income account)                  CREDIT                          2000

I want to correct this last (created transaction) to match reality and take into account the brokerage fees (prepaid expenses)

1. Add a split to remove the prepaid commissions, subtracting them from the gross capital gain

Brokerage:Open commissions(asset account)       CREDIT                             22

2. Adjust the Orphaned Gains amount to reduce the gain
Orphaned Gains		                        CREDIT                         2000-22 (1978) 

3. Edit the split Orphaned Gains to either of two accounts
LTCG:Brokerage or
STCG:Brokerage
Orphaned Gains                                  CREDIT                          2000
And then enter the transaction

So the final Realized Gain transaction looks like

Realized gain/loss
STOCK XYZ (asset account)                       DEBIT                 2000
LTCG:STOCK XYZ                                  CREDIT                           1978
Brokerage:Open commissions(asset account)       CREDIT                             22

This has the effect of converting the prepaid expenses into actual expenses, which reduces the gross capital gain.

I actually go one step further and have another Brokerage:Closed Commissions account.  After I do the above transactions,
I go back and change all the Open Commissions to Brokerage:Closed Commissions.  In this way, Brokerage:Open Commissions shows me my total of prepaid expenses and Brokerage:Closed Commissions should ALWAYS be a 0 Balance. This is a good double check that I’m doing the transactions correctly.

If you have multiple lots, or sell part of a lot, you can generally tell from the brokerage statement how the initial Brokerage:Open Commission amount should be split so that you can balance out the Closed Commission and have the correct capital gain/loss.