[GNC] Investment accounts - maintain ongoing balance only

[Michael or Penny Novack]

On 5/8/2022 3:47 PM, Stan Brown wrote:
> On 2022-05-08 10:17, Scott Soderling wrote:
> Debit  to Assets:Investment Account
> Credit to Income:Investment Gains and Losses
>
> (Some people, me among them, would put Investment Gains and Losses under
> Equity rather than Income. I do this because investment gains and losses
> can exceed the total of all ordinary income and expenses in a given
> month; also, I budget my income and expenses but not investment gains
> and losses, which are unpredictable. Since these adjusting transactions
> are for your benefit and not your accountant's, you can do whatever
> feels natural to you.)

This is not quite an account vs non-accountant thing.

Two things to keep in mind. Accounts of "type" income or "type" expense 
are actually accounts of fundamental type equity << the only REAL types 
are asset, liability, and equity. In the earliest days of double entry 
bookkeeping (we are talking about hundreds of years ago) there were no 
":temporary" account of type income or expense. Then  somebody realized 
that by (temporarily) doing the transactions against income and expense 
additional useful information was to be had. Moved to equity by the 
:close the books" process. Because software like gnucash can produce the 
reports without "closing the books" we tend not to ever :close the 
books" and so don;t  "see" the types income and expense as temporary.

So of course you can use equity as the other side. You also should 
realize that this might be a very good way to go for "investments" where 
the increase over time (the unrealized gains) will NEVER be realized << 
instead, the asset will be "converted" into something else or never 
cashed in. In other words, you want the increase in value to bypass 
income and go straight to equity. I'll give examples of both:

converted --- A "deferred annuity" (aka "retirement income" policy). The 
little policies received each year from the employer (as retirement 
benefit*) will be swapped for a single annuity by the carrier when you 
retire. They are cash value policies, so you COULD track their increase 
in value each year. The point here is that once converted no longer has 
a cash value as such << yes it has value, could be marketed --- AND for 
fair comparisons of equivalent net worth you MIGHT want to compute the 
"present value of an annuity" but you could not market it for anything 
like that fair worth. But leave that to somebody like me who knows how 
to use actuarial tables (including which to use for this) >>

never cashed in --- a small business, especially a family farm, might 
carry a "2nd death" policy on the owners. Again, not cashed in because 
the whole point of this is to have the policy face value (plus 
additions) available to buy out the shares of those heirs who will not 
be involved with continuing the business. Mutual partner insurance is 
similar (so the surviving partners can buy out the heirs of the deceased 
partner). The whole point of THIS kind of insurance is to allow the 
business to continue instead of having to be sold to satisfy the claims 
of heirs.

Michael D Novack

* In other words, a "defined contribution" plan which is probably more 
common these days than a "defined benefits pension" plan.