Trial Balance Report with Investment Transactions

[David]

John,

Explain to me how I should enter my commissions and fees, other than what I have done (see the example file on the bug). I wish to track these costs; tell me how accountants do it, so that the trial balance and balance sheet will work for me.

David



_____________________________________________
From: John Ralls <jralls at ceridwen.us>
Sent: Mon Feb 13 20:26:02 GMT+05:00 2017
To: "sunfish62 at yahoo.com" <sunfish62 at yahoo.com>
Cc: Gnucash <gnucash-user at gnucash.org>, Richard Lindgren <rlindgren74 at gmail.com>, Chris Good <chris.good at ozemail.com.au>
Subject: Re: Trial Balance Report with Investment Transactions



> On Feb 12, 2017, at 11:29 PM, David T. <sunfish62 at yahoo.com> wrote:
> 
> John, 
> 
> I truly don't understand what you're saying. The commissions are entered once. I'm not expensing them, as far as I understand it. Everything I have read says that capital gain in the US is discovered by the formula:
> Sale price - purchase price - commissions. 
> 
> In my example, for 100 shares, I have:
> * a purchase cost of $11.90
> * a sale of $3480
> * sale commissions of $64.05, entered as splits on the sale transaction
> 
> Gnucash wants me to report gain of $3468.10
> My broker and I both get $3404.05
> 
> Please tell me how GnuCash's number is right (especially since my broker is willing to report my number to the IRS).
> 
> Moreover, it appears that the trial balance is perfectly happy to balance out when the gains transactions are duplicated (e.g., if I scrub the account, and end up with my gain of 3404.05 AND gnucash's 3468.10). I'm not sure how that is supposed be right. 

David,

What I'm saying is that you can *either* book the commissions and fees as an expense *or* you can reduce the capital gain income by the amount of the fees. You cannot do both for a single trade. If you book the commissions and fees as an expense then the the capital gain income is the total of selling price x shares - buying price x shares.

What your broker's trade confirmation does is break out the net: It tells you the share price and the number of shares, and a gross sale value. Then it deducts (for a sale) or adds (for a buy) the commissions and on a sale deducts the fees and reports a net sale value or cost basis; subtracting the cost basis from the net sale value results in the "netted out" capital gain that you report on your taxes.

If you instead apply the commissions and fees as expenses, then they can't also be used to reduce the capital gains income. The capital gain income would be the difference of the gross sale less the gross basis ignoring the commissions and fees and the profit or loss shows up as the difference between income and expense according to the usual accounting equation.

The trial balance seems to have been broken before I fixed bugs 774368 and 340991. I didn't know that at the time, I don't often use it, but I'll take your word that until 2.6.15 it would balance out even when you accounted twice for commissions and fees. The current behavior is correct.

Regards,
John Ralls