Serious Investment Management with Gnucash

[Alton Brantley]

I manage about 10 investment accounts with 5-6 figure balances. I do transaction entry manually, with dividend distributions as scheduled transactions.

A typical investment account (other than mutual funds) is set up as follows:


1. Account name (Asset)                 -this is the “bank” account-cash in the account- it is also the overall transaction journal
— 00. Commissions (Asset-Placeholder)
——OpenCommissions(Asset)	-I consider the commission when I open a position as a prepaid expense which will be later applied to reconcile capital gain
——Yr2017Commissions(Asset)	-Current year closed position commissions
——PriorYrCommissions (Asset-Placeholder)
———20xxCommissions (Asset)  	-Balance in these accounts should always be ‘“0”
———2016Commissions(Asset)
——0.ClosedPositions (Asset-Placeholder)
———ClosedPositionsCurrentYear
———PriorYrClosed Positions (Asset-Placeholder)
————ClosedPositions 2016 (Asset-Placeholder)   —repeated for each prior year
—1.Stocks (Asset-Placeholder)
——OpenPosition 1 (Stock) 		-repeated for each stock
—2.Fixed Income (Asset-Placeholder)
——OpenPosition 1(Asset type)
—3.Options (Asset-Placeholder)
——OpenPosition1(Asset type)
—4.OtherInvestments (Asset-Placeholder)
——OpenPosition1 (Asset type)

I have set up outside of these accounts
Income (Income-Placeholder)
—Dividends (Income-Placeholder)
——1.Accountname (Income-Placeholder) -repeated for each account
———InvestmentName		—repeated for each investment
—Interest (Income-Placeholder)
…………similar to Income above
Expense (Expense-Placeholder)
…………similar to Income above)
NonTaxable Income(Income-Placeholder)
…………similar to Income
NonDeductableExpense (Expense-Placeholder)
…………similar to Expense


CapitalGains (Income-Placeholder)
—STCG (Income-Placeholder)
——Accountname (Income-Placeholder)
———CurrentYearSTCG(Income
————PriorYearSTCG (Income-Placeholder)
—————2016STCG(
Similarly for LTCG, NonTaxableSTCG, and NonTaxableLTCG


The reason for this layout is that it matches the sequence of investments on the statement

Transactions
Open a position
1. Create the asset account under the appropriate placeholder if necessary
2. Buy Transaction
          Debit     Credit
Split1 Stock                                   This is the OpenPositionAccount
Split2 Commission                         This is the “OpenCommissions"
Split3                 Accountname       This is the cash account/transactions journal

A BUY reduces cash and increases Stock asset and “prepays” the commission which will be reduced to determine NetCapitalGain

3. Sell Transaction

          Debit     Credit
Split1		Stok
Split2 Commission
Split3 Accountname	              	

A SELL reduces the position, increases the prepaid commission asset and increases the cash balance

4. Lot allocation and Net Capital Gains
4.1 Simple case (full lot bought and sold)
	Use Action-View Lots to link the BUY and SELL transactions
        These will produce a new (derived transaction) called “Realized Gain/Loss” which looks like this (for a gain)

          Debit     Credit
Split1 Stock				This is the OpenPosition Account reduction
Split2               Orphan		This is the income account automatically generated

Now, to edit this transaction:

4.1.1
	Edit the Orphan account name to the corresponding CapitalGains subaccount (taxable or non-taxable and then Investment account
	
	Add a split which is the sum of the BUY commission and SELL commission as a CREDIT (reduction) to ClosedCommissionsCurrent Year
		and CREDIT(reduce the gain) or DEBIT (increase loss) as appropriate
        Edit the BUY and SELL transactions from OpenPositions to Closed Commissions Current Year

	This will give you a Capital Gain or Loss matching your broker, have a zero balance in ClosedCommissions, and reduce your prepaid commissions amount

4.2 Complicated case (partial lot bought or sold or both)

Check your broker sheet to see which lots were used
Split the OpenCommissions proportionally for the partial and remaining lots
	(simple example-broker fee of $10 in 200 share lot and 100 shares allocated to lot)
             edit the OpenCommission split in the BUY transaction into two splits with $5 in each debit then use one of the two splits in CapitalGains part above
            This will use $5 to reduce capital gain(loss) and leave $5 for future reduction in remaining position sale
       Issues: Rounding for awkward lot sizes and not easily divisible commissions can be messy! But it still works!


Dividends, Interest, etc are simply straightforward.

At the end of the year, you can see what your income from each asset or account are that are taxable or nontaxable, your capital gains and losses match the brokerage tax statement (generally),
and you can see short and long-term capital gains.
Where the capital gains don’t match up is generally due to a company recategorizing some or all of its distributions.

This may seem complicated to set up, but once you have the “machinery” working
1. transactions and investments are easy to enter and follow
2. brokerage statements match up
3. year-end renaming of accounts and creation of new year accounts is quick and easy


This is my system and it works well for me.
Caviat: I am not an accountant, just a very active investor.