Long-time GnuCash user, all-around double-entry bookkeeping nerd here (yes, we exist, I’ve even made videos about the topic, god help me.) I’ve been playing with Manager Desktop all day and am really impressed with the thought, care, and polish that went into the product. A big part of getting bootstrapped here was reading these forums, which do a good job of explaining some of the rationales behind some of the decisions (particularly with respect to the splitting of receipts and payments, and the way control accounts interact with the chart of accounts.) So I wanted to stop by and say “Thank you!” to everyone who posts here with advice and suggestions.
I’ll be living on Manager in parallel with GnuCash for the next few months to see if it fits with my workflow. Like a number of other people, I do have investment accounts that I need to track [audible groan from the readers…], but I do understand that this isn’t Manager’s raison d’etre. For now, I’ve given it a couple of sacrificial small accounts, and am treating one as containing securities as inventories, and the other as just being a black box special asset account that I’ll revalue at the end of each quarter. We’ll see how it goes.
I would suggest that every purchase of shares (securities) be entered as separate item as per date. e.g.
If you purchase 1,000 BHP shares on 15/05/2021 create an inventory item for these 1,000 named “BHP Shares 15May21”. Then if you purchase another 2,000 BHP shares on 25/05/2021 create another inventory item for these 2,000 shares called “BHP Shares 25May21”.
This way when selling you can choose shares from each lot and the inventory cost will reflect exactly what you paid for these shares initially.
I definitely see the advantage of having the cost basis fall out of the inventory system naturally this way, that’s nice. Is there any best practice to get the capital gains to appear as a single line in the P+L statement? If I do nothing, I end up with a revenue line for the sale and a cost of goods line for the purchase. I see there are custom income and expense account fields, but the documentation doesn’t quite make clear how they work (or else I’m missing it).
EDIT: Aha, I found another forum post by Brucanna that explained it - setting the custom income and expense accounts to the same account produced exactly what I wanted.
This information is available per inventory item in the Inventory Profit Margin report.
Yes that is one way of doing it, but my preference is to show both the revenue and the cost of goods sold in the P&L as the cost is important when completing a tax return (at least in my tax jurisdiction).
You can still use custom income and expense accounts one for revenue and one for costs.
The other issue I have in Australia is that shares held for more than 12 months enjoy a 50% discount on the capital gain which has to be factored in.
New Investments tab is coming into Manager later this year. It will allow to track purchase and sales of securities and will automatically calculate realized gains on first-in-first-out basis.
The workaround that @AJD is proposing will work but it’s a lot of hassle to create separate inventory item for each purchase of securities. Investments tab will be proper solution.
Also, it is not only about FIFO. It is perfectly legitimate in Australia to select the securities with the highest cost to sell, without regard to FIFO, to minimise your profit, or to select the ones with the lowest cost to offset against losses if required.
Manager is great because it is so simple to use. The navigation makes it easy to find everything unlike some accounting programs where it’s like a maze to find the option you are looking for.
Don’t know anything about securities and investments but people like Brucanna can definitely help with that.
You mentioned reading the forums. Have you seen the guides? Guides | Manager
It is perfectly legitimate in Australia to select the securities with the highest cost to sell, without regard to FIFO, to minimise your profit, or to select the ones with the lowest cost to offset against losses if required.
This is true in the US as well. Still, definitely looking forward to the investments tab to see how it works.
One of the things I’m still finding my way around is the interesting decision to never let general journal entries touch bank accounts - everything is a purchase, a receipt, or a transfer to another bank account. I get this conceptually, but end up worrying that I will break myself depending on how I structure the chart of accounts. For example, in the hypothetical above where I have an investment account represented as a special account underneath a non-bank, non-inventory control account (acknowledging there are other ways to do it and an investment tab coming in the future), how does one represent money moving into the account at all? Is that essentially a purchase from a bank account with the investment account as the target?
EDIT: Answer seems to be yes. I feel like I’m getting the hang of it.
I realise you’re not talking about manager, but since this thread was pushed to me tonight, I thought I would jump in because seeing someone who might really like the product and who likes to make videos, you should be aware, don’t think about doing that for manager, it won’t be well received.
Thanks @Brucanna I am already doing something similar to this.
It is also important to keep in mind that in Australia capital losses can only be used to reduce capital gains, with excess capital losses carried over to future years to be available to reduce future year capital gains. They cannot be used to reduce other income.
All true, therefore at year end any excess capital losses are transferred out of the P&L via a journal and stored under Equity on the BS until they can be utilised in future years.
PS: Investment Earnings account is renamed Retained Earnings
That would result in the Capital Loss Reserve showing negative equity (Debit balance). It would be more appropriate to take it to a BS asset account such as “Claimable Tax losses”. (acounts prepared on an Income Tax Basis)
DR Claimable Tax Losses (BS asset)
CR Capital Gains/losses (P&L)
If accounts are not prepared on Income Tax basis the entry would be:
DR Claimable Tax Losses (BS asset)
CR Retained earnings (BS Equity)
That would be true if it was a financial transaction with a actual asset value, but it is not.
The transaction is nothing more than a notional (reminder) record to assist with the preparation of future year tax returns, the recorded financial performance shouldn’t change because of this notional record.
Which is exactly what it should represent - negative equity as the Capital Loss Reserve is only a reallocation from the Equity > Retained Earnings account. Let’s use this example:
You make capital gains of 600 and capital losses of 1,000, therefore the financial performance is a loss of 400, which results in the Equity > Retained Earnings being a debit balance of 400. Just because you want to do a notional transfer of the excess capital gains to suit future year tax returns doesn’t change the financial performance being recorded under Equity.
So you either have Equity > Retained Earnings with a debit balance 400 or you have Equity > Capital Losses Reserve with a debit balance 400, both reflect the correct financial status.
There isn’t an Accounting Standard which permits the recording of a financial loss (400) as an asset, especially when that proposed asset can never be realised at the suggested asset’s book value.
However, if you wanted to recognise the future tax benefit of that financial loss then that is a different story. EG: if the applicable tax rate was 25%, then the future tax benefit of that carried forward financial loss would be 100 and that could be recognised in the accounts.
