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.

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@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.

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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

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

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.

 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.

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.

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.

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.

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

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.

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!

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 

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.  

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@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.  

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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.

@JPaperman This is the best explanation I have found on how to track investment accounts in QB. Thank you for taking the time.

I'm wondering how dividends and interest, and the opposite fees and expenses, should be handled. I think I'm getting close with the set up. There's an overall Other Current Asset account called Investment A/C. Then there are sub Other Current Asset accounts:

Investment Contributions - money transferred from checking account to investment account, tracks the base cost

Dividends & Interest

Fees & Expenses

Realized Gains/Losses

Unrealized Gains/Losses

Market Adjustment

I think I can follow the above for the changes in market value, but what transaction and what accounts would be used for the dividends and fees? I think dividends could be an income account but I'm currently thinking track it all here and then at year end do a transaction to add it to income.

All the above said, I would like the overall Investment A/C that has the sub accounts under it to reflect the value on the month end statement. If I'm crediting/debiting Unrealized/Market Adjustment, that won't be the case right?

Thanks in advance for any further clarity you can provide.

In thinking this through some more, to tackle dividends and interest:

• Make a customer account for the investment firm the statement comes from
• Make an income account for Investment Income > Dividends & Interest
• Make an Item "Dividends" which points at the income account above
• When the statement comes in, raise an invoice to the customer with the item for the amount shown on the statement
• Receive this invoice
• Then deposit the receipt into the Other Current Asset account in the previous post

I'm still not entirely sure that's right but seems to work for dividends. For fees and expenses, you can't record a negative invoice so following the logic above you'd have to use a credit memo but then getting that to the Other Current Asset account and ensure that it offsets Investment Income... I've not got that far yet!

This is by the way a for profit company, not a non-profit. Anyone got any thoughts?

I'm using QB for non-profit on line.  I can't figure out how to create the accounts indicated above.  In the "Account Type" and "Detail Type" I can't find an account for "other revenue".  If I use "other income" I'm not sure it will do what the recommendation intends.

Other income should work fine.

I'm not sure what your goal here is with all the sub-accounts. If you want to go with your idea I'd think that doing journal entries instead of invoices would work better - then you can just point it to the accounts you want. You could also create a recurring entry to make it easier on yourself.

Dividend income:

Debit Investments.dividends

Credit Dividend Income (other income)

Fees:

Debit Investment Fees (other expense)

Credit Investments.Fees&Expenses

and so on.

You said that at year end you close all these accounts to income - not sure why that isn't double counting the income? If your goal is to track where the income comes from during the year then you could just use income statements. Set up income/expense accounts for all the things you want to track and in investments just have 3 subaccounts for Cash, Securities, Unrealized gains/losses. You'd journal entry based on monthly statement of dividend income/fees into their income/expense accounts and the other end into the investments.cash account (or into the investements.securities if reinvested). The market adjustment would db/cr into the gain/loss account depending of if it's a decrease or increase in market value and the other end goes to the investment.market adjustment account. To track the income items annually you would then just run a P&L report and filter it to only pull those income items.

Overall, just not sure what you're trying to accomplish here?

Thanks for the reply @JPaperman. I guess with the accounts I'm proposing above, I'm trying to track:

Investment A/C = total value of the investment account (say every month or more likely every quarter - make it match to the brokerage statement)

That account is made up of sub accounts (which is where transactions should post to) - the sum of the sub accounts = Investment A/C total.

Sub Account: Contributions = the money transferred from the business checking account to the investment account - this is the base cost I believe.

During the course of the quarter, dividends & interest might be added to the brokerage account. These increase the overall value of the brokerage account and so Investment A/C total should go up. These amounts likely get reinvested. So I was thinking:

Sub Account: Dividends & Interest = money received via these methods

Either the brokerage firm or a financial advisor might be taking a quarterly fee so:

Sub Account: Fees = money charged by firms for managing investment portfolio. This is a negative that reduces the overall Investment A/C total of course.

Then if you sell some stock, you'll realize gains or losses - these too add up to the overall value of the investment and the asset right? It's possible you transfer this back to your business checking account to pay for something, or it could be reinvested in other stocks:

Sub Account: Realized Gains/Losses

And then finally we get into the market going up and down from hour to hour, day to day etc but not selling anything. On the brokerage account there's a value for that, so how is that reflected to make the overall Investment A/C add up to what the value of your brokerage account is at the end of the quarter? This is where it gets hazy and sub accounts that come into play may be:

Sub Account: Unrealized Gains/Losses

Sub Account: Market Adjustment

I need to read through your comments in close detail to try to follow them but I hope this helps clarify what I was thinking of trying to do. I guess when it boils down to it I was just trying to make the Investment Accounts in QB match the brokerage statement every quarter, while keeping track of how much the business has sent to the brokerage account and how much it has earned or lost as a result of dividends/interest, fees, selling stock, and what it's currently worth (even though that is unrealized). Maybe this is all wrong! :-)

Open to all ideas!

I haven't tried setting up these accounts yet, but this answer seems the ALMOST correct.  The BS will record accumulated M-t-M, or Unreal G (L) by posting the Other Asset and Equity Accounts, but I also need to create a Statement of Other Comprehensive Income below Net Income, reflecting only the current year (period) change in value.  Does QB not have selection for type of account that would both allow for tracking accumulated unreal G (L) in equity and M-t-M on the BS, and the current period change below net income on the P&L?

My issue is that while the securities can be created in Other Assets, with M-t-M also booked to Other Assets and offset in equity as Unreal G (L) or OCI, I don't YET know how to get QB to BOTH reflect Accumulated Unreal G (L) on the BS/Equity/OCI, AND reflect current period OCI below NI on the P&L. I must have Accumulated OCI in BS equity AND a Statement of Other Comprehensive Income below Net Income.  Must I manually calculate current period OCI added to Accumulated every reporting period and use a PDF editor to add statement of OCI below NI, or is there a way to set up accounts in QB Desktop that is smart enough to calculate the period change, move it to accumulated OCI and reflect current period (year) OCI below NI?