Handling Initial Stock Holdings

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Handling Initial Stock Holdings

sunfish62
Shout Hallelujah! I have a question about how to use GnuCash, and accounting
(as opposed to railing annoyingly about how I could get GC to install and run
on my IntelMac...).

I imported my Quicken files, and am getting my brain around how to do stuff the
GC way. My immediate question has to do with setting up stock holdings. Let's
say that on the starting day of my GnuCash existence, I own 100 shares of XYZ
Widget company, with a value of $500. I think that I should create a
transaction from Equity into my Brokerage account of 100 XYZ shares, value
$5/share. But if this is the case, how do I track capital gains? If I bought
the shares for $1 a share, there's nothing in the record to show the cost
basis...

I'm asking because when I imported my Quicken file, I found that Quicken had
retained earlier transactions in my stock accounts that had to do with the
addition or subtraction of shares (such as reinvested dividends). In that
Quicken file, I had performed a year-end copy at some point in the past;
Quicken retained those earlier transactions, but somehow hid them. Now when I
import the QIF file, these hidden records turn up, with disastrous results on
the accuracy of my overall accounts.

So, I am figuring that I will have to reset my stock accounts at an arbitrary
date, and move forward from there. Unless someone has a better idea...

David

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Re: Handling Initial Stock Holdings

Derek Atkins
"David T." <[hidden email]> writes:

> Shout Hallelujah! I have a question about how to use GnuCash, and accounting
> (as opposed to railing annoyingly about how I could get GC to install and run
> on my IntelMac...).
>
> I imported my Quicken files, and am getting my brain around how to do stuff the
> GC way. My immediate question has to do with setting up stock holdings. Let's
> say that on the starting day of my GnuCash existence, I own 100 shares of XYZ
> Widget company, with a value of $500. I think that I should create a
> transaction from Equity into my Brokerage account of 100 XYZ shares, value
> $5/share. But if this is the case, how do I track capital gains? If I bought
> the shares for $1 a share, there's nothing in the record to show the cost
> basis...

You should set up the initial balance to correspond to the initial
purchase price, not the actual value.  I.e., the opening-balance
transaction should reflect the basis of the stock.

> I'm asking because when I imported my Quicken file, I found that Quicken had
> retained earlier transactions in my stock accounts that had to do with the
> addition or subtraction of shares (such as reinvested dividends). In that
> Quicken file, I had performed a year-end copy at some point in the past;
> Quicken retained those earlier transactions, but somehow hid them. Now when I
> import the QIF file, these hidden records turn up, with disastrous results on
> the accuracy of my overall accounts.
>
> So, I am figuring that I will have to reset my stock accounts at an arbitrary
> date, and move forward from there. Unless someone has a better idea...

I dont know.

-derek
--
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
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Re: Handling Initial Stock Holdings

sunfish62

--- Derek Atkins <[hidden email]> wrote:

> > $5/share. But if this is the case, how do I track capital gains? If I
>
> You should set up the initial balance to correspond to the initial
> purchase price, not the actual value.  I.e., the opening-balance
> transaction should reflect the basis of the stock.

I can see how I'd do that with a single lot, but what should I do with multiple
lots? Do I set up a single entry with an aggregate basis, or do I create
individual opening balance transfers for each lot?

Moreover, what about determining the taxable status vis-a-vis the determination
of long term vs. short term capital gains? It would seem to me that this is
quite important; is the answer simply that I track this in some other way? If
so, that's too bad.

Since my source QIF file included all of these earlier purchases, I am
wondering whether there is a way to retain the transactions in a principled way
for historical purposes. Obviously, they can't stay in the system unaltered, as
the funds to purchase the stocks came from accounts that have been purged of
all other entries in the date range. The inclusion of some records but not all
obviously throws off all the balance sheets.

Could I modify the purchase transactions to use the Equity account as a source?
What would the impact be for data integrity? Would this be maintainable? Would
I encounter trouble when next I perform a year-end closing of the books?

Thanks!

David

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Re: Handling Initial Stock Holdings

Derek Atkins
"David T." <[hidden email]> writes:

> --- Derek Atkins <[hidden email]> wrote:
>
>> > $5/share. But if this is the case, how do I track capital gains? If I
>>
>> You should set up the initial balance to correspond to the initial
>> purchase price, not the actual value.  I.e., the opening-balance
>> transaction should reflect the basis of the stock.
>
> I can see how I'd do that with a single lot, but what should I do
> with multiple lots? Do I set up a single entry with an aggregate
> basis, or do I create individual opening balance transfers for each
> lot?

I think you need to do it with multiple opening balance transfers.

-derek
--
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
       [hidden email]                        PGP key available
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Re: Handling Initial Stock Holdings

sunfish62
In reply to this post by sunfish62
Karl and Derek and the others who have been helpful here:

Thanks for the guidance on this. I recognize that I am looking at a rather
complex migration (some 35 accounts covering loans, stocks, bank accounts, real
assets, etc.), which doesn't make it any easier to learn the basics.

Karl, I agree with pretty much all you're saying about putting in what you
need. I guess I believe I need this level of complexity because I've already
been tracking this stuff for years in Quicken. One thing in your message that I
am intrigued by is where you said:

"It's easy to take an equity entry and replace it with the actual
transactions."

Can you elucidate? What would the transactions that I add in later look like?
Where would they draw funds from? Looking from the other end, as it were, I see
that my vestigal transactions make use of an account called "Retained
Earnings." Would the transactions you describe use this account, or would they
use something else? In my situation, should I leave these transactions as
drawing from Retained Earnings, or should I change them to another account?

Thanks!
David


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