[GNC] Asset accounts: cost, or value?

[Peter West]

In my neck of the woods, sale prices of houses are recorded with the records of change of ownership. Sale values may not be available until some time after the sale, but they will appear. Online real estate sites can tell you the history of sales and sale prices in whatever area you are interested in. You can therefore get a reasonable idea of what is happening to values in your area.

If the purpose of your personal accounts is to inform you – not some external authority – of your equity standing, is it better to stick to the purchase price of an asset you may have had for a decade or more, or to include an estimate of the sale value of the property? In any case, external authorities are likely to want an estimate of current market value.

Any corporation that does NOT provide estimates of appreciation or depreciation of capital resources is not reporting accurately, as far as I can tell.

--
Peter West
pbw at pbw.id.au
“Ha! What have you to do with us, Jesus of Nazareth? Have you come to destroy us? I know who you are—the Holy One of God.”

> On 2 Sep 2020, at 10:28 pm, Marcus Winston <marcus at thechocolatehouse.net> wrote:
> 
> OK, Thanks. So the "balance" in the asset account would reflect the cost of the asset, not its value. That's fine, and is what I concluded also.
> 
> Next question: When I sell the house, I'm adding the costs to sell the house (title insurance, reconveyance fees, etc) to the cost of the house itself. In other words, this will increase the bottom line on the fixed asset "House" account. For two-column accounting, where does that money come from (what's the other account)? I tried using an equity account, but then I end up with a positive equity value on the house after I sell it, and that doesn't make sense (I think I should have zero equity in the house once it's sold).
> 
> MW
> 
> On 9/1/20 10:38 PM, Stan Brown wrote:
>> On 2020-09-01 19:49, Marcus Winston wrote:
>>> I had thought that the Assets:Fixed assets:House would reflect the value of
>>> the house. But after putting the purchase price of the house, and then
>>> adding the costs to purchase (recording fees, appraisal, etc), I conclude
>>> that the House account actually reflects the total cost of the house, and
>>> not necessarily its value. First question: is that a correct view of the
>>> Assets:Fixed assets:House1 account?
>> Any tracking of value that you might do would be mere speculation. Even
>> an appraisal is no indication of how much your house is really worth:
>> both when I moved earlier this year both houses' appraisals were about
>> 20% different from the selling price.
>> 
>> Valuing assets on a balance sheet at somebody's guess of what they're
>> worth, known as "writing to market", is part of shady accounting
>> practices and, if I'm not mistaken, partly responsible for the real
>> estate crash of 2008-2011. Don't do it!
>> 
>> And of course for tax purposes, as you indicated, you _have_ to work
>> from actual costs, not from guesses about value. Keeping your books on a
>> cost basis will make that less difficult when you make out your tax returns.
>> 
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