Accounting for Investments - Stocks and Shares

You could write a whole book on this subject, and there are no doubt many important aspects to do with tax and earnings from shares and other investments, but this topic is purely about dealing with stocks and shares as a bookkeeping exercise in its simplest form.

  1. Buying shares as an investment. Open a new fixed asset account called ‘Stocks and Shares Bought’. Make a Purchase Transaction From Bank To Stocks and Shares Bought.
  2. Selling investment shares. Make a Sales Transaction From Other Sales To Bank.
  3. Accounting for the profit or loss on sales of investments. Open a new Cost of Sales account called Stocks and Shares Sold. Make a Transfer Transaction From Stocks and Shares Bought To Stocks and Shares Sold for the cost of those shares sold (not the selling price but the price you paid when you bought the shares in the first place).

Here’s the logic of the above. Stocks and Shares Bought will show the value of your current stockholding. It will also show the history of stocks and shares bought and sold if you double-click on it and view the entries in the right hand panel. Other Sales (in your P&L Group) will show the actual value you sold the investments for for the period covered (ie. the current financial year). Every time you make a sale you also account for the movement of your stocks and shares from Bought to Sold at cost. The Stocks and Shares Sold account is an expense of the business and when taken with ‘Other Sales’ shows whether you made a profit or loss on your investments.

To finish, here’s an example:

  1. You buy 100 shares at 1.00 each. 100 From Bank To Stocks and Shares Bought. Result: Bank = -100, Stocks and Shares Bought = +100. All this is within your assets group. There is no profit or loss.
  2. You sell 10 shares for 3.00 each. There are 2 transactions to make here:
  • Sale Transaction: From Other Sales To Bank 30. Result: Other Sales = +30, Bank = -70 (-100+30). P&L = +30
  • Transfer Transaction: From Stocks and Shares Bought To Stocks and Shares Sold 10. Result: P&L = +20 (+30-10)