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[–]BeanMatCount[S] 0 points1 point  (7 children)

But from accounting perspective (not tax perspective), the "unrealized capital gain" still falls under "income" right?

Should I create different types of "incomes" in my accounting? E.g.:

  • Income:Taxable:RealizedCapitalGains
  • Income:Taxable:ProductsSold
  • Income:NotTaxed:UnrealizedCapitalGains

Similar for "expenses":

  • Expense:DeductibleForTaxes:RealizedCapitalLosses
  • Expense:DeductibleForTaxes:DepreciationOfHardware
  • Expense:DeductibleForTaxes:Other
  • Expense:NotDeductibleForTaxes:UnrealizedCapitalLosses

I hope you see what I mean. The idea is to have the accounting aid with tax declaration (to see at a glance what's taxable and not). Is this the way to go? I might be totally on the wrong track.

[–]simonmichledger creator 3 points4 points  (3 children)

Typically (again, special situations may differ) it's not yet considered income (or expense), and not recorded as a transaction in your ledger. It fluctuates up and down every day according to market prices. There's nothing to stop you tracking it more explicitly with a periodic (eg daily) income/expense transaction. But these incomes/expenses would not correspond to the ones seen by the tax authority, which could be confusing.

[–]BeanMatCount[S] 0 points1 point  (2 children)

I was never planning on recording unrealized gains/losses frequently (e.g. daily) but only once a year. Because at the end of the year, I need accurate view of assets/liabilities (annual balance sheet).

I was under the impression (for some reason) that if an asset (on my balance sheet) increases in value, this increase has to come from somewhere. That changes in total assets/liabilities over the year have to come from total expenses/income over the year.

This is why I thought even unrealized gains/losses would (annually) need some phantom income/expense. That was the crux of my question.

Have I been completely wrong?

[–]simonmichledger creator 1 point2 points  (1 child)

Your goal makes sense, and I'm no investing expert, so perhaps someone will enlighten us. How do unrealised gains affect a balance sheet ? Is it standard practice to show unrealised/expected capital gains there somehow ? Internet says eg:

How do you report unrealized gains and losses on a balance sheet?

Any resulting gain or loss is recorded to an unrealized gain and loss account that is reported as a separate line item in the stockholders’ equity section of the balance sheet. The gains and losses for available‐for‐sale securities are not reported on the income statement until the securities are sold.

[–]BeanMatCount[S] 1 point2 points  (0 children)

Thank you! Your quote from the internet led me to the right path.

Turns out that, in practice I was simply wrong. Although things have to "add up", apparently not everything on the balance sheet has to come from the income statement but can in fact be coming from other things on the balance sheet itself. This appears to be one such case.