[GNC] asset discrepancy in change of year

[John Ralls]

> On Apr 11, 2021, at 5:01 AM, Andrea Borgia <andrea at borgia.bo.it> wrote:
> 
> Il 10/04/21 20:33, John Ralls ha scritto:
> 
> 
>> 1) No, but that's separate from trading accounts. That's the point of the bug report.
>> 
>> 2) No, the trading accounts just make it obvious that you haven't booked the gain/loss.
>> 
>> 3) That's back to the discussion in the bug. When you trade securities in a foreign currency you have *two* sources of gains/losses: The gain or loss realized in the foreign currency from the sale of the security and the gain or loss from converting the foreign currency back into your home currency. Study that bug and the spreadsheets that CDB-Man has attached. The basic point that CDB-Man (an actual accountant licensed in Canada) makes is that every time you touch an asset denominated in something other than your home currency the change must be converted back to your home currency and the change in home currency value booked as a gain/loss. It's possible, but difficult, to do this in GnuCash. Trading Accounts don't really help.
> 
> So, as an "executive summary" of sorts: I can't win and even a tie is out of the question ;)
> 
> 
> I'm trying to think how to handle it as simply as possible; I'll study the bug report because I'd like to understand it but I'd rather avoid complicated manual work to be carried out each time I buy or sell funds, because that will happen seldom enough that I'd basically have to relearn the whole process each time :(
> 
> 
> Would keeping the books open, without "trading accounts", across years actually help? I'd still be calculating a profit / loss by closing the income / expense accounts, but that's all. Somehow I think this would just hide the problem, though.
> 
> Alternatively, I could keep "trading accounts" enabled, see how much unrealized profit / loss I have for the year and factor in that when calculating the initial capital for the following year. That's actually the situation I am in right now: the discrepancy between initial capital in 2021 and end capital of 2020 is precisely the amount listed by the trading account, for both EUR and USD.

The bug report documents a significant shortcoming in GnuCash's design. There's no simple workaround, only the manual work described in the bug report. 

Closing your book and starting a new file every year makes for additional work for tracking investments as you must re-create the buy transactions in the new file so that you can keep track of the basis and holding period. Aside from that there's no difference in booking realized gains/losses. 

You may be confusing "recognized gains" and "realized gains". A realized gain (or loss) is the change in value between a buy and a sell transaction. In contrast an unrealized gain is the change in the value of an asset that you  still own. If you update prices in GnuCash then you can display the value of your assets at the latest price on the Accounts page and in various reports if you select "latest" as the price source. A recognized gain is a realized gain that you've correctly recorded with a pair of splits. A balance in a trading account indicates that you have unrecognized realized gains. 

Your statement about recalculating the initial capital each year suggests marking to market, that is creating a transaction that recognizes the unrealized gain at the end of the year, changing the basis of the stocks. That's generally required only of banks and investment companies and it has substantial tax consequences. You should do so only with the advice and guidance of a locally-licensed accountant or tax advisor.

The problem described in the bug report is that even those trading account balances don't tell the whole story because they don't convert your USD realized gains to EUR and recognize the gain/loss on converting USD->EUR. As long as the amounts are small enough to not concern your tax authorities the discrepancy is somewhat academic, but if the amounts aren't small you should get professional advice about how to handle it.

Regards,
John Ralls