Dear John, Thank you for the detailed example. Yes, your examples make sense to me, and what I expect to happen, though I'm still not clear on how to actually implement the following in GNUcash:
You need to book that gain as income in order for your book to stay in > balance in USD. In your example, of a $0.45 trading gain, assuming this is a taxable gain, how exactly in GNUcash would I "book that gain as income"? Assuming I classify the income as Income:Other, what would I offset the transaction of $0.45 against for my "book to stay in balance in USD"? I would assume such a transaction would be against the unrealized loss/gain shown on the Trading account, but it appears you cannot offset against this account directly. I've attached an example book that just has only the following transactions: 1. 1/1/2024 10,000 JPY Opening Balance into Assets:Current Assets:checking_jpy 2. 1/1/2024 100 USD Opening Balance into Assets:Current Assets:Checking Account 3. 1/2/2024 Transfer of 100 USD to Assets:Current Assets:checking_jpy with Exchange Rate of 0.0067 for a JPY value of 14,925 With only a single Price Database value for 1/2/2024 the Trading account balance is 0.00 as expected. If I add another entry for 1/4/2024 of 0.007, then the Trading account balance is -4.48 USD. (i.e. 100 - 14,925*0.007). This appears to be an unrealized loss. If the value of JPY increased from 0.0067 USD to 0.007 USD, then shouldn't this be an unrealized gain and not a loss? Then if on 1/4/2024 I enter an expense of 1500 JPY against the Assets:Current Assets:checking_jpy account, the Trading account balance remains at -4.48. How then am I to "book the gain as income" such that it would modify the unrealized loss? Thanks in advance. On Sun, Feb 16, 2025 at 3:38 AM John Ralls <jra...@ceridwen.us> wrote: > Bo, > > For this discussion I’m using the term trading gains to refer to both > gains and losses and booking both (as credits and debits respectively) into > an income account. > > As you say, the income occurs when you go the other way. Leaving off > trading accounts for a moment, if you transfer $100 to JPY @$.67/¥100 > there’s no income. When you buy lunch later in the week for ¥1500 and the > exchange rate that day is $.70/¥100 then you have a USD expense of $10.50 > (1500 * .7) but a USD cost of only $10.05 (.67 * 1500) so you have a > trading gain of $.45. You need to book that gain as income in order for > your book to stay in balance in USD. Now you claim that some of those > trading gains are taxable and some aren’t. If that’s true then you need two > accounts to keep them separate so you know how much taxable trading income > to report on your taxes. > > If it’s really that simple then you can use a single set of trading > accounts to track your unreported realized gains. > > But what about JPY income? That has to be booked to a USD-denominated > income account at the day’s exchange rate but when you buy lunch with that > money and book the expense on a different day and exchange rate you have > the appearance of a trading gain that needs to be balanced, but no trade > occurred. At that point I’m in over my head and have to tell you to get > professional advice on both how to do the accounting and how to use trading > accounts to keep track of the trading gains. I can easily imagine the need > for separate sets of trading accounts to ensure that everything stays in > balance in both currencies, but remember that I have neither experience nor > expertise in this. > > Regards, > John Ralls > > > On Feb 14, 2025, at 19:53, Bo Buckley <topherbuck...@gmail.com> wrote: > > Dear John, > > Thank you for your reply. > > I don’t understand what you mean by “zero this out for today”. > > > Maybe I misunderstood what you meant when you said, > > If the net gains aren’t taxable then you can book them to a separate >> non-taxable income account. > > > Say I'm doing my US reporting, and this transfer from USD to JPY wouldn't > be taxable (as far as I know, only the opposite would be). Then to "book > them to a separate non-taxable income account" would involve what exactly? > Say I had an Income:NonTaxable account, what would the transaction look > like? I apparently can't offset a debit to Income:NonTaxable with either > Trading account, so not sure what this would look like. > > Thanks again. > > On Fri, Feb 14, 2025 at 10:38 AM John Ralls <jra...@ceridwen.us> wrote: > >> Bo, >> >> I don’t understand what you mean by “zero this out for today”. >> >> The Totals column on the Accounts page presents the ending balance for >> each account (even if that’s in the future), converted to the book currency >> using the most recent exchange rate available from the account’s commodity >> to the book currency. >> >> The manually created trading splits will look just like the automatically >> created ones. The difference will be that you have to create them yourself, >> selecting the taxable or non-taxable balance. Remember that the trading >> accounts are outside of the accounting equation and exist to help you keep >> track of your conversions into and out of commodities so that you book the >> gains and losses and keep your overall book in balance. The goal of >> splitting the trading accounts would be to make it clearer which trading >> gains income account—taxable or not-taxable—needs to be adjusted to balance >> your book. Mind that I’m not an accountant and even if I was I wouldn’t be >> *your* accountant. I also have no experience as an ex-pat paying US taxes >> on income earned in somebody else’s currency. >> >> One other thing to be aware of: The register displays currency >> differently depending on whether trading accounts are enabled: When they’re >> enabled the debit and credit numbers represent the amount in the split’s >> account’s commodity; when trading accounts are off the credit and debit >> numbers are the values in the current register’s account’s currency. In >> other words with trading accounts off all of the amounts in your >> JapaneseChecking register will be JPY and in Banking Service Fees they’ll >> all be USD. >> >> Regards, >> John Ralls >> >> >> On Feb 13, 2025, at 16:39, Bo Buckley <topherbuck...@gmail.com> wrote: >> >> Thank you for your reply John, >> >> >If the net gains aren’t taxable then you can book them to a separate >> non-taxable income account. >> >> Even if I zero this out for today as an example, won't the Trading >> account balance continue to fluctuate even after doing so as new price >> entries come on day to day? I'm trying to understand how to finalize the >> transaction in the same way I would wrap up a GOOG stock sale (i.e. I would >> never expect to keep tracking unrealized gains/losses on the idea that the >> USD received from the stock sale is waiting to be "sold" to return back to >> GOOG. >> >> >GnuCash also can’t automatically handle multiple trading accounts per >> commodity. If you need that you’ll have to turn off trading accounts in >> File>Properties and manage the trading accounts and splits manually. >> >> Assuming I turn it off, do you have an example transaction to help me >> understand what you're proposing here? I'm not sure I understand what this >> would solve. >> >> Thanks in advance. >> >> >> >> On Fri, Feb 14, 2025, 02:37 John Ralls <jra...@ceridwen.us> wrote: >> >>> >>> >>> > On Feb 13, 2025, at 01:19, Bo Buckley <topherbuck...@gmail.com> wrote: >>> > >>> > In the foreign currency docs: >>> > >>> https://gnucash.org/docs/v5/C/gnucash-guide/currency_trading_accts.html >>> > >>> > The Trading and CURRENCY placeholder accounts now indicate a modest >>> >> realized loss of 0.82 USD on the currency transactions. >>> > >>> > >>> > it appears to explain that the Trading top-most account balance >>> represents >>> > a loss if positive or a gain if negative. I only have a single >>> transaction >>> > so far that involves converting USD to JPY for a transfer. See >>> attached for >>> > the transaction. The Trading account already shows a balance of 247.38 >>> USD. >>> > How does this make sense? I didn't lose money on the transfer (other >>> than >>> > the fee). It appears this balance is calculated based on the most >>> recent >>> > Price Database entry for the currency (i.e. JPY at 0.0066 for >>> 02/09/2025). : >>> > 4,964.32 - (714,688* 0.0066) = 247.38. >>> > >>> > It seems to be interpreting a currency exchange from 1/9/2024 as a loss >>> > even though at the time of the trade it was not a loss. How am I to >>> > interpret this and what is this Trading Balance used for elsewhere? I >>> don't >>> > want it unintentionally affecting some other report calculations. >>> > >>> > For the sake of clarification, lets compare this behavior to stock >>> trading. >>> > USD and JPY are two commodities, just like USD and GOOG. For my example >>> > transfer from USD to JPY, the Trading Account balance loss seems to be >>> > similar to an unrealized loss if I interpret the transfer transaction >>> as >>> > buying JPY from USD with the intent to someday convert back to USD. >>> This is >>> > similar to buying GOOG from USD and if GOOG dropped in values since >>> buying. >>> > But why is it not interpreted the opposite way, i.e. I sold USD to get >>> back >>> > JPY (or I sold GOOG to get back JPY for the stock analogy)? I want to >>> make >>> > sure GNUcash is not unknowingly treating the correct transactions as >>> > taxable events and not the opposite. I.e. for Japanese tax reporting >>> the >>> > transfer would represent a taxable event as I "sold USD". The opposite >>> > would be true for US tax reporting no? I want to make sure I >>> understand the >>> > implications of this balance. >>> >>> Bo, >>> >>> The Accounts page Total column does use the most recent price database >>> entry to value each commodity that isn’t the book currency and that will >>> make the trading accounts reflect an unrealized gain or loss. >>> >>> US GAAP and IAS require all foreign currency transactions to be valued >>> at the time of the transaction in the book currency, and doing so >>> inevitably creates trading gains an losses that must be accounted for to >>> keep the books in balance. If the net gains aren’t taxable then you can >>> book them to a separate non-taxable income account. Keep in mind that >>> GnuCash has no way of helping you catch mistakes where you book a capital >>> gain or loss to the wrong income ro expense account: It can only verify >>> that the accounting equation balances for the whole book. GnuCash also >>> can’t automatically handle multiple trading accounts per commodity. If you >>> need that you’ll have to turn off trading accounts in File>Properties and >>> manage the trading accounts and splits manually. >>> >>> Regards, >>> John Ralls >> >> >
trading_test.gnucash
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