[GNC] Cashflow-like report to show realized and unrealized gains / balance sheet delta report

[csingley]

Adrien Monteleone-2 wrote
> Keep in mind, except for very special circumstances, for most people,
> ‘unrealized gains’ are simply a ‘what if’ level of thinking. They do not
> belong in your books. Only actual realized gains are reflected there.

I don't think "owning investments" counts as very special circumstances...
and for investments, carrying them at historical cost is really the "what
if" thinking.  The entire profession of accountancy has risen up with one
voice to declare loudly that financial assets are worth what you can sell
them for today, and anchoring on your cost basis is bad accounting that
leads to bad decisions.  In fact, Deutsche Bank is currently being widely
shamed in the financial press for just this very sin (refusing to write down
some horrible mortgage deals until they actually disposed of them years
later).

If you buy a stock, and it becomes worthless, you are *actually poorer* even
if you don't realize the loss.  Conversely, try telling long-time Berkshire
Hathaway stockholders that their position deserves a 95% haircut, even if
they can sell their BRK stock today and exchange it for bonds that would pay
an annual income equal to their cost basis in BRK.  Guess they'd better
postpone retirement until they sell their stock... "Using this one weird
accounting trick, he increased his safe retirement withdrawal 10x with the
click of a mouse!  CFPs hate him!!"

Looking only at realized gains can be fine if you just want to report *what
happened*, as for paying taxes.  However, if you want financial reports that
help you decide *what to do*, it's unhelpful to convince yourself that
unrealized gains don't exist.

It's not really "what if" to examine your winners & losers, and decide to
rebalance your portfolio accordingly.  It's not really "what if" to look at
how much in unrealized losses you have to offset realized gains in order to
manage your tax bill.  These are not weird corner cases, they are primary
concerns of the users of these financial reports (like the OP).

They're just a pain to implement.  They're not wrong-headed.


Adrien Monteleone-2 wrote
> If the gain is unrealized, then the account balance has not changed.
> 
> If you physically (or in a bank account) have USD 1000 at the beginning of
> the year because you traded EUR 1000 at a 1:1 rate, and at the end of the
> year, have not done anything with that USD 1000, you still only have USD
> 1000.
> 
> GnuCash might value this at EUR 2000 for the purpose of balancing your
> books, but what you actually hold has not changed. Your bank isn’t going
> to report that you now have EUR 2000 instead of USD 1000.
> 
> Now, if you trade that USD 1000 back to EUR at the new rate, then and only
> then will you really have EUR 2000 - a realized gain.
> 
> If you are using multiple currencies properly, the USD account should
> reflect USD 1000, not EUR 2000.
> 
> If you want to see why the GnuCash balance sheet might reflect a valuation
> change on a currency or commodity, turn on Trading Accounts, select them
> in the report options and also choose the option to show exchange rates.
> 
> If you look at the exchange rates for the end of last year balance sheet
> and new balance sheet, they difference will reflect the value assigned to
> the ’Trading Gain/Loss’ line.
> 
> Keep in mind, except for very special circumstances, for most people,
> ‘unrealized gains’ are simply a ‘what if’ level of thinking. They do not
> belong in your books. Only actual realized gains are reflected there.
> (even being required to ‘mark to market’ would be handled by a transaction
> to realize any gain/loss)
> 
> Regards,
> Adrien
> 
>> On Feb 27, 2019, at 4:18 AM, Chary Chary <

> chary314@

> > wrote:
>> 
>> Christopher,
>> 
>> thanks.
>> 
>> But I must say, I still have a sneaky feeling, that I may be missing
>> something, because I just don't understand how people who deal with
>> several
>> currencies and who have stock can possibly live without such report,
>> which
>> would show unrealized gains.
>> 
>> Without report with unrealized gains you have a situation, that you have
>> some balance at the beginning, balance at the end, but you have no
>> report,
>> which would show how you got from balance at the beginning to balance at
>> the end. Even though all your individual transactions are balanced, if
>> you
>> add them all together they will not produce a delta between balance
>> sheets,
>> in case you deal with  more then one currency or have stock / gold
>> (anything).
>> 
>> In a very simple situation:
>> 
>> Say I want to report in EUR, but I keep money in USD. Say I have 1000 USD
>> and exchange rate was 1:1 at the beginning.
>> So, starting balance sheet will say, that I have 1000 EUR
>> Then exchange rate changed and now 1 USD costs 2 EUR. So, all of a sudden
>> balance sheet at the closing will show, that I now have 2000 EUR.
>> But how did happen?
>> I would then expect some line, saying something like: "unrealized gain
>> due
>> to USD/EUR" exchange rate changes"  - 1000 EURO.
>> 
>> The same applies to stock changes.
>> 
>> Am I talking some nonsense? How do people manage their finance without
>> such
>> analysis in our modern world?
> 
> 
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