Set up and maintain a brokerage account?

unrealized gain or loss are not posted. In your example, you have the 98 cost, the 2 balance and 0.24 as interest.  

But QB is not capable of maintaining a brokerage account, there is no way to handle return of capital, splits, number of shares, reverse splits, etc etc.  Best option is to just enter the total amount invested in an asset account and balance it out monthly.  Use the brokerage statement for the details, and/or use quicken to record the brokerage statement

Hi, I was doing some research on connecting a brokerage account to QBO with a bank feed, and I came across your question. I hope I am not too late in answering. I am a CPA with about 6.5 years of experience and an adjunct accounting professor.

Your setup and workflow are generally correct correct. When you transfer cash from your checking account to your brokerage account, you would record a transfer in QBO from your checking account to the cash sub-account of your brokerage account.

My advice would be to set up a "securities" sub-account under your brokerage account, as well. So, using your example, you'd then transfer $98 from the cash sub-account to the securities sub-account. This would leave you with $98 in your securities sub-account, $2 in your cash sub-account, and $100 total in your brokerage account.

Note that purchasing securities for your brokerage account is NOT an expense! All you are doing is moving money from one place to another on your balance sheet. None of these transactions touches an income statement account and thus does not affect your income.

With respect to dividends and brokerage fees...These are income and expenses, respectively. So, when you see these show up on your brokerage statements, you have to record them. You can record dividend income either as a journal entry (debit your securities sub-account and credit dividend income) or as a bank deposit (just make sure to select your securities sub-account as the account receiving the deposit). You can record brokerage fees as either a journal entry (debit brokerage fees expense and credit your securities sub-account), or as an expense (just make sure to select your securities sub-account as the account from which the expense is paid).

When you sell securities, you will also have a realized capital gain or loss. You will record this transaction as a journal entry: debit your brokerage cash sub-account; credit your brokerage securities sub-account; and if you have a loss, you will debit your realized gain/loss account, and if you have a gain, you will credit your realized gain/loss account.

For example, let's say you sold some stock and got $50 in cash for it and there was a realized gain of $5.  (Your monthly brokerage statement will show realized gains - you don't have to calculate these.) Your journal entry would look like this:

Brokerage Cash: $50 debit

Brokerage Securities: $45 credit

Realized Gain: $5 credit

When you hear the term "capital gains," generally that is referring to realized capital gains. A capital gain occurs when you sell an asset for more than you paid for it. So, in the example above, you paid $45 for a stock that you then turned around and sold for $50, so you've got a $5 capital gain on that sale.

With respect to unrealized capital gains, you don't have to record these if you don't want to. Most for-profit businesses carry their investments at cost, meaning they don't adjust the balance in the investment account unless they buy more securities or sell some of their securities. So, if you bought that $100 in securities and then never bought and sold them, they would always be on your balance sheet at $100, plus any dividends earned and less any brokerage fees paid.

The only time you would have to make an adjustment would be if the value of the stock fell below the original purchase price. For example, if you bought $100 worth of stock and the value fell to $90, you would have to record a loss of $10. This would still be an unrecognized loss, because you don't recognize gains and losses on securities until you sell them, but you'd still have to record the loss on your books.

If you did want to keep the value of your brokerage account in sync with what your monthly statements say, you could record an unrealized gain or loss at the end of each month to "true up" the balance in your brokerage account to what the statement says. You would use a journal entry to do this. The journal entry would look like this:

If the value of the brokerage account goes up:

Debit brokerage securities sub-account

Credit unrealized gain/loss account

If the value of the brokerage account goes down:

Debit unrealized gain/loss account

Credit brokerage securities sub-account

Of course, you'd want to make this journal entry after you've recorded any dividends, interest, brokerage fees, purchases, sales, and realized gains/losses for the month.

You asked questions about account types, as well. Here's a breakdown:

Brokerage account: Bank or Other Asset

Cash sub-account: Bank or Other Asset (same as parent)

Securities sub-account: Bank or Other Asset (same as parent)

Dividends: Income (you don't really need to separate dividends and interest, but you can if you want)

Interest: Income

Realized Gain/Loss: Income

Unrealized Gain/Loss: Income (not equity)

Note that while Unrealized Gain/Loss is an income statement account, this will be excluded from your tax return. For example, if you have $1 million in total income, but $900K of that is unrealized gain, you won't pay tax on the $900K because it is unrealized (you don't pay taxes on gains until they're realized).

Likewise, you can't deduct unrealized losses. So, for example, if you had $100K in total income, but that's after a $10K realized loss, you'd actually be taxed on $110K in income because that loss is non-deductible.

Your tax professional will make adjustments to your income to account for non-taxable income/non-deductible losses/expenses. Any unrealized gains/losses you record will be among these adjustments.

I hope this helps! Good luck!

OMG This was AMAZINGLY helpful in setting up our Beneficial Interest Endowment Fund!!!!

Thank you for breaking down each step and addressing brokerage statement items clearly, and THANK YOU for listing the account types for each of the treatments.  I was about halfway there but was absolutely stuck and your reply answered all of my questions.  I have now posted my two quarterly statements and my auditor is going to love me!!  Thanks again!

Hoping someone could give me a hand, its right in the vein of this conversation.

I have an Investment Account with my bank, and each month I move $1500 from my Business Operating Account to the Investment Account, and the bank purchases pre-selected mutual funds within the account.

Every time the the QBO accounts update (since its connected to my bank) the balance changes, since its updated in real-time on my bank site.

What is the best way for me to structure the account types? Using QBO in Jan 2022 I can't seem to find unrealized gain/loss account types etc. 

Just want something simple, that will track my contributions and allow my accounts to balance. 

Thanks!

Thank you for your explanation. It is so well laid out. You must be a professor!!

Yep - same procedure. You'd either record a journal entry crediting the checking account and debiting the brokerage account OR a transfer from the checking account to the brokerage account.

When I set up a chart of accounts, I typically set up an Unrealized Gain/Loss account as an "Other Income" account type. When you reconcile your brokerage account every month, you can debit/credit your investment account and then credit/debit your Unrealized Gain/Loss account to make your balance sheet match your brokerage statement. On your P&L statement, the Unrealized Gain/Loss will show up all the way at the bottom, after your operating income and expenses.

I hope this helps!

Hello! Thanks for the insights. I have followed it and recorded dividend income as debit Securities credit Dividend Income.. now my question is, what's the entry for reinvested dividend income? 
Say, 

Securities   $1.49
  Dividend Income  $1.49

The following month, the dividend income of $1.49 was reinvested.. How's the accounting treatment for it? This is also a brokerage account Thank you so much. 

If you don't have a sub account for cash, then you won't have any additional entry for a dividend re-investment. If you had a sub account and recorded:

Brokerage Account: Cash $1.49

                      Dividend Income $1.49

Then to record the re-investment of the dividend, you would record:

Brokerage Account: Securities $1.49

                      Brokerage Account: Cash $1.49

How do you handle reinvestments of dividends?