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Level 2

How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

We are a nonprofit that holds some investment accounts, which have gains/losses.  I need to mark them to market every quarter.  The list of equity account types in QBO doesn't include anything which fits this purpose.
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Best answer 04-08-2019

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Level 2

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

I ended up figuring it out for myself, and it was surprisingly easy.

 

For those of you who kindly offered advice, thank you.  This is not an accounting nor a tax issue, it's a QBO mechanics issue.

 

To mark an investment account to market, first create an "Other Revenue" sub account, which in  my case I named "Unrealized Gain/Loss."

 

Then when you need to mark to market, take the amount of gain/loss and create a Journal Entry.

Debit the Unrealized Gain/Loss by the appropriate amount and credit the account in question (in my case an Investment account containing mutual funds) by the same amount.  Or the opposite, depending on the sign (gain or loss).

 

That's all you need to do.  I checked the Statement of Activities and the Balance Sheet reports and all is correct.  Because the Unrealized Gain/Loss account is an "Other Revenue" account, it appears below the line, as it should.

 

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10 Comments
Level 7

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

Gains and losses on investments should be set up as an OTHER INCOME account called unrealized gains and losses.  You adjust a gain by crediting unrealized gain and record a loss by debiting unrealized gain or loss.  The opposite side of the transaction would be the asset account for the security.  If you are doing fund accounting, each fund should be an equity account.  You would zero out the asset accounts each month into the equity fund account.

Level 10

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.


@Cidrolin wrote:
We are a nonprofit that holds some investment accounts, which have gains/losses.  I need to mark them to market every quarter.  The list of equity account types in QBO doesn't include anything which fits this purpose.

The change in value of an investment is not a tax event. So that is a good argument to not record this in the accounting

Level 15

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

An unrealized gain can not be income, unrealized means you did not get any.  Posting it to income will skew net taxable income, since there is no offsetting expense

 

Unrealized gains or losses are a balance sheet event

 

In the chart of accounts, create an asset or sub asset account for the investments, named unrealized gain on investments

 

create an equity account named the same of similar

 

then a journal entry

for an increase in value

debit asset unrealized gain on investments and credit equity unrealized gain on investments

 

for a decrease in value

debit equity unrealized gain on investments and credit asset unrealized gain on investments

Level 7

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

I disagree.  No one every said that unrealized gains or losses were a taxable event.  Realized gains/losses are recognized when the funds are sold.  So at that time, the entry is either a debit or credit to REALIZED GAINS/LOSSES and offset by unrealized gains/losses. 

 

In order to track fund balances, you have to track unrealized gains/loss as an other income account (or you can use an other expense account).  Changes in total fund balances (i.e. P&L by class or job) have to be recorded from retained earnings so that retained earnings and current year net income zero out and moved in each fund set up as an equity account.

Level 15

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

 the P&L is and should be a reflection of income and expense

there is no Statement of Financial Position and your Statement of Activities in QB

 

If you were going to post unrealized gains to the P&L as income, then there needs to be an expense account called something like unrealized expense which offsets the income entry.  Absent that unrealized expense entry, gross income is overstated, as is net income.

 

And some states tax based upon gross income.

 

 

Level 7

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

Can we agree to disagree?  I know of no accountant that uses the QB reports as a bible to prepare tax returns or financial statements.  Every client is different with their reporting needs.  It is the accountant's job to determine the proper tax and financial reporting.  We can only educate our clients to record transactions correctly and then go behind them and make corrections as necessary.

Level 2

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

Thanks Malcolm.

 

But this isn't about taxes at all.  We are a nonprofit and don't pay taxes.  It's about conforming to GAAP.

Thanks anyway.

 

Level 2

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

Hi, thanks for your reply.

 

You are welcome to disagree.  But GAAP and my CPA say that unrealized gains and losses on Marketable Securities (i.e. can be converted quickly to cash) have to flow through the P&L even though they're unrealized.  Not at all like unrealized gain on something like a house, which isn't liquid.

Level 2

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

I ended up figuring it out for myself, and it was surprisingly easy.

 

For those of you who kindly offered advice, thank you.  This is not an accounting nor a tax issue, it's a QBO mechanics issue.

 

To mark an investment account to market, first create an "Other Revenue" sub account, which in  my case I named "Unrealized Gain/Loss."

 

Then when you need to mark to market, take the amount of gain/loss and create a Journal Entry.

Debit the Unrealized Gain/Loss by the appropriate amount and credit the account in question (in my case an Investment account containing mutual funds) by the same amount.  Or the opposite, depending on the sign (gain or loss).

 

That's all you need to do.  I checked the Statement of Activities and the Balance Sheet reports and all is correct.  Because the Unrealized Gain/Loss account is an "Other Revenue" account, it appears below the line, as it should.

 

View solution in original post

Level 1

Re: How do I set up an equity account to track unrealized gains/losses on marketable securities? None of the equity account types appear correct for this purpose.

Unrealised Gain or Loss is a balance sheet/SOCE item not a revenue one. It should be reported in the equity section of the balance sheet as a separate line item. Catering it as a revenue line item will overstate your revenue or other income. I agree to your point that its an issue within QB online and should be recorded by passing Journal Entry. What is unrealised Gain or loss? Something which has occurred on paper (only) just because of change in exchange rates, happened between recording date and actual receipt/payment. it will not enhance your revenue or income line items in any way, that's why we call it UNREALISED. Cheers.

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