Adjusting or entering asset balances

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John

17 Jan, 2022 11:12 PM

I have seen a fair number of MD posts where the question had to do with making a simple change to the Asset balance, such as updating the value of your home at year end, entering the increase in balance for a retirement fund each quarter, or changing the current balance of your brokerage fund monthly which contains many investments. Having been a long time Quicken user (single entry bookkeeping), I had to think back to my graduate student days to refresh my double entry accounting training as used by MD. Below is a simple example of how to adjust an Asset balance in double entry accounting.

Let's take a case of buying and selling a house for cash. Regardless of the Asset balance you want to adjust, you need a Gains category, then a Gains:Unrealized subcategory, and then a Gains:Realized subcategory. Add each of these as Income categories. If necessary, create a Home asset account. Now buy the example home for $300,000 using cash from your checking bank account and putting the money to Home as the account.

By the end of the year, you discovered nearby houses like yours are selling for $350,000. Create a new transaction in your Home account, type "Adjustment" in the Description box, and $50,000 in the Increase column. Make this a Split transaction and on the second split enter Gains:Unrealized and $50,000 as an increase. You are recording that your home increased in value by $50,000 but you have not sold it nor have you received any money. Gains:Unrealized is an accrual-based category to store future gains so be sure to exclude it from your Income/Expenses report!

The next year, someone offers you $350,000 for your home and you accept. Ignoring closing costs here, record a deposit into your Checking account for the $350,000 received. This is a Split transaction. Add a second split line for a $50,000 decrease from the Gains:Unrealized category to reduce the accrued value. Finally, add a third split line for $50,000 increasing Gains:Realized, which is a cash-based category and shows as Income. Your Net Worth report shows $0 under Homes (if it shows at all) and Income/Expense reports will show $50,000 of Gains:Realized income.

Gains:Unrealized now will be zero assuming you are tracking no other assets. If you are, then this category balance represents all the potential value you expect to collect in the future based on all other unrealized gains.

I hope you find this helpful.

  1. 1 Posted by dtd on 17 Jan, 2022 11:28 PM

    dtd's Avatar

    just a user

    Nicely written. About what I do as well, with some differences that work for me.
    A good suggestion for a knowledge base article!

  2. 2 Posted by dwg on 18 Jan, 2022 01:39 AM

    dwg's Avatar

    Another way is if you want to track a property as say an investment.

    Say the initial value is your 300,000 enter 300000 as the number of shares at a price of 1.00.

    If your value in 12 months is 350,000, you entered a date price of 1.1699 and each time you revalue you enter a new price.

  3. 3 Posted by John on 18 Jan, 2022 06:25 PM

    John's Avatar

    Hi DTD and DWG,

    Thank you for your replies. My goal was to put up a simple solution so someone new to MD or double entry accounting could see how easy it is to track a change to their home price or the current value of their Vanguard IRA, keeping their Net Worth report accurate without messing up their Income reports. It sounds like you think I accomplished this and I hope the Powers That Be are able to make this accessible to their user base, however that process works.

    DTD: Using MD in real life, I actually have 3 Gains subcategories: Unrealized, Realized ST, and Realized LT to distinguish Long Term and Short Term since they have different tax consequences. Perhaps you do something similar. There is a lot of flexibility in MD to set up things just the way you want.

    DWG: This is a really clever workaround you developed. A real world example and some additional detail about how to input this to MD might make another useful post for the KB to benefit the more experienced MD users out there. There may be some truly complex situations that could be solved with your ideas.

    John

  4. System closed this discussion on 19 Apr, 2022 06:30 PM.

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