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.
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