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Cidrolin
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.
Solved
Best answer April 08, 2019

Best Answers
Cidrolin
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.

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

16 Comments 16
QBsguru
Level 7

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.

Malcolm Ziman
Level 10

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

Rustler
Level 15

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

QBsguru
Level 7

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.

Rustler
Level 15

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.

 

 

QBsguru
Level 7

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.

Cidrolin
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.

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.

 

Cidrolin
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.

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.

Cidrolin
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.

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

MuhammadACCAMCSI
Level 1

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.
investments equities
Level 1

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.

Working with a firm a billion dollars worth of investments. this is correct. only realized gains are taxed.

kellyd3
Level 1

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 All:

 

Technical accounting answer is it should be on the balance sheet.   QBO creates the journals for you when you use the revalue function.   (Settings - Currency - select the currency dropdown and select revalue).

In my case the asset is AR in foreign currency, it posted the other side to an Unrealized Gain/loss in the Equity portion of the balance sheet.   For accountants this is where you would normally have an account call OCI (Other Comprehensive Income).  So it works.  My issue was I could only see half the entry (the AR increase), my Retained Earnings transfer was different on Income Statement vs Balance Sheet.  

You need to make sure the Unrealized Gain/loss flag is on in your Income Statement, also it only seems to be visible in a single statement mode and not the I/S monthly comparative which is why I was getting in consistencies in RE.

ieremias
Level 1

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.

According to page 18 of this resource on non-profit GAAP accounting: 

Unless explicitly restricted by donor stipulation or by law, realized and unrealized gains and losses on debt and equity investments generally should be reported in the statement of activities as increases or decreases in unrestricted net assets. If temporary donor restrictions are imposed on an asset’s use, however, investment gains and losses should be recorded as increases or decreases in temporarily restricted net assets. Similarly, if the asset’s use is permanently restricted, related gains and losses should be reported as increases or decreases in permanently restricted net assets. Realized and unrealized losses on investments may be netted against realized and unrealized gains on the statement of activities.

 I hope this helps!

 

Sarah2012
Level 1

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.

Agree with you, the same way I see it, in the B/S Investments (asset)  = Unrealized loss/gains (Equity).

 

However, then when the stock is sold, at that point, you have realized loss or gain, then the journal will be transferring from equity unrealized loss/gain to profit & loss realized loss/gain. At that point, my investment balance (matching bank statement) is not equal to the unrealized loss/gain(equity) because was reduced by the realized losses/gains. Is that correct?. thanks 

M Bassett EA
Level 1

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.

There is such a misconception around Unrealized Gains/Losses in the accounting community.  Unrealized Gains/Losses are tracked in the equity section of the Balance Sheet.  These gains/losses should never be on a P/L.  

JPaperman
Level 1

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.


@M Bassett EA wrote:

There is such a misconception around Unrealized Gains/Losses in the accounting community.  Unrealized Gains/Losses are tracked in the equity section of the Balance Sheet.  These gains/losses should never be on a P/L.  


 

That's true for most "for profit" companies (unless they choose mark-to-market accounting), however it is not true for not-for-profit organizations. US GAAP requires that they report readily marketable investments at market value and run the unrecognized gain/loss through their statement of activity (their P&L). 

 

I create an other revenue account called "Unrealized Gains/Losses" and another for "Realized Gains/Losses". For each of my investment accounts I then also create a sub account called "Market Adjustment". As assets are bought they are debited to the Investment account at cost (I do keep the investments and cash holdings in separate accounts) - debit investments, credit cash for the same amount. When they are sold debit the cash for the sales price, credit the investment for the original cost (basis) and the difference goes into the "realized gains/losses" income account. This way the investment account always has the original cost basis for any assets held. Each month I then look at the market value of the investments compared to their original cost - I then debit/credit the "Market Adjustment" sub account for whatever amount is needed to bring it to the difference between the basis and market values with the other end of the transaction going into the "unrealized gain/loss" account.

 

Quick (maybe not so quick) example. I buy a stock for $100 - debit the investment for $100 credit the cash for $100. I now have an investment with a market value of $100 and an investment account showing $100, no adjustment needed.

The stock value goes up to $150. At the end of the month I now have a difference of $50 so I debit the "market adjustment" account for $50 and credit the "unrealized gain/loss" for $50. My Activity Statement now shows a $50 unrealized gain and the balance sheet shows a net investment value of $150 (investment $100 + adjustment sub account $50). 

The stock value then drops to $130. At the end of the month I now have a difference of $30 so I credit the market adjustment account to bring it down from the $50 debit it already has to the new $30 debit balance needed - credit $20 and debit the unrealized gain/loss account for the $20. For the month I have an unrealized loss of $20 - the YTD net is $30 gain ($50 gain first month - $20 loss this month). The balance sheet shows a $130 investment value ($100 investment + $30 adjustment sub account).

Now the weird one, I sell the stock for $125. I record the sale - debit cash $125, credit the investment account for the cost of $100 and credit "recognized gain/loss" for the $25 difference. The investment account now has a zero balance and I have zero market value investments - so I need a zero in the market adjustment account. It has a $30 debit balance so I credit it $30 and debit unrealized gains/losses for $30. The balances sheet now shows the zero investments and zero adjustment. The activity statement will have the $25 realized gain and a $30 unrealized loss (yes, that nets to this months drop in value from $130 to $125). YTD the activity statement will show a $25 realized gain and a zero unrealized gain ($50 gain first month - $20 loss second month - $30 loss this month) which is good because there are no longer any Unrealized gains/losses after it is sold.

 

So the eventual gain/loss gets recognized in the "recognized gain/loss" account when the asset is sold. The "unrealized gain/loss" account tracks the increases and decreases in value until you sell it at which point it zeroes out.

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