Double-entry accounting for separately managed investment accounts

We have several separately managed investment accounts, some of which are RRSPs and some are not. The firm that manages those accounts provides monthly statements and the requisite tax slips at the end of the year, but they do not provide detailed capital gain/loss information for the non-RRSP accounts and they provide none whatsoever for the RRSP accounts.

The fact is that there is too much activity inside those accounts for us to want to include such detail in our books, but we do want to include those accounts at a higher level. What are our options for handling such accounts in double-entry books?

Following is a quick way to put your investments on your books, HOWEVER I would also suggest you track your investments in detail in Quicken or a similar type program so you have your Adjusted Cost Base (ACB) and can easily capture your gain/loss on sale. If you don't do this, how do you plan to report properly on a tax return when an investment os sold? It becomes a particularly troublesome task to track down the ACB information when investments are held for years. Records often get lost.

Many brokerages now provide a column showing your cost base in addition to the market value. When your reports have this feature, they also usually let you call in / write asking them to adjust the cost of an investment if their value doesn't match yours. This is often necessary after a switch between brokerage houses. IF your broker isn't providing this information, you may be able to call and have them look it up for you. They often have access to that type of data even if you don't. Another option is to change to a brokerage house that provides that type of information on your monthly statement.

Also, all RRSP income is not taxable as it is sheltered. The income is taxed upon withdrawal. At that time, taxes are also withheld. I'm guessing your RRSPs are not in the company name, so you would not include these in your business records.

If all of your investment accounts are personally held (i.e. even the non-registered accounts) they should NOT be on your books at all. Do not confuse / mix keeping track of your personal finances with those of your business.

Assuming that the investment accounts are related to an incorporated company and not a sole proprietorship, and that the investments are in the company's name, not yours personally, this is what I would do in QuickBooks:

1. Create a bank type of account for each of the investment accounts you want to track. You may want to have these as sub accounts under a parent account called "Investment Accounts".

2. Create an other asset account called "Investments at Cost" or "Marketable Investments".

3. Create sub-accounts under "Investments at Cost" or "Marketable Investments" for each of the investment accounts you setup bank type accounts for.

4. Setup revenue accounts according to how the income will be reported on your T2 S125 GIFI Statement. For example Foreign Interest, Foreign Dividends, Canadian Interest, Canadian Dividends, Capital Gains Distribution, Return of Capital, etc. I would put all these under a parent account called "Investment Revenue".

5. If you have foreign investments, create an expense called "Taxes Withheld" and make it a sub account of your Income Taxes account. Also setup an other income type AND other expense type accounts called "Gain on Investments" and "Loss on Investments" respectively.

6. Each month do a general journal entry similar to this to record your income:

CREDIT Investment Revenue:Canadian Dividends $250
CREDIT Investment Revenue:Foreign Dividends $400
CREDIT Investment Revenue:Canadian Interest $350
DEBIT Income Taxes: Taxes Withheld $60
DEBIT Investment Accounts: XYZ (your cash account setup as a bank type in QuickBooks) $940

If you have investments where dividends are reinvested, add this to your entry or make a separate general journal entry:

DEBIT Investment Accounts: XYZ $10 (to record shares/units at costs)
CREDIT Investment Revenue:Canadian Interest (or the appropriate revenue stream) $10

7. When you purchase an investment, record a general journal entry similar to this:

DEBIT Marketable Investments: XYZ $4000 (to record investment AT COST)
CREDIT Investment Accounts: XYZ $4000 (to record your cash withdrawal)

8. When you sell an investment, record a general journal entry similar to this:

DEBIT Investment Accounts: XYZ (to record your cash deposit) $8000
CREDIT Marketable Investments: XYZ $5000 (to remove investment AT COST)
CREDIT Gain on Investments $3000

The example above assumed a loss. Adjust the entry/accounts if there was a loss.

Each year you will also have make adjusting entries for return of capital and capital gains as per your Tslips.

I hope this helps you. I want to stress this is how I would handle it. I'm not sure if certified accountants would agree or not as I'm not up-to-date on ASPE or IFRS requirements for investments.

It is important to note that this just captures the value of your investment. It is not tracking your individual investments within each account. I can't stress enough that you need to track your individual investments, even it is a pain, as that is the only way you will be able to correctly account for the sale of any investment on your tax return accurately. Why is this important? Because your original cost is not the whole story. The cost of your investment changes if you have reinvested dividends, return of capital, capital gains distributions, etc. The value after these adjustments is called your ACB.






P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.