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  #1  
Old 08-11-2017, 09:58 AM
mnschwarz mnschwarz is offline
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Receiving a deposit direct to asset account

Hi,

I'm unsure exactly how to record a particular transaction I have. I had an asset (investment) that is managed by a third party. I instructed them to sell the asset and invest the funds in a different asset. I need to record the sale of the original asset, realised gains, purchase of the new asset and transfer of the remaining funds to my bank account. These left over funds are the only part to touch any of my bank accounts which is where I'm stuck. I tried using undeposited funds but Quickbooks wont allow it. I can record the transaction to a bank account and then transfer out but this is incorrect and won't match my bank statements. What is the best way to handle these transactions that never touch my accounts? Thanks.
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  #2  
Old 08-11-2017, 05:35 PM
Lorin Browning Lorin Browning is offline
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It looks like there are multiple transactions.

Before the go any further, is the following faithful to the structure of the transactions? Monetary amounts are assumed for sake of illustration only.
  • Existing asset on books for $10,000
  • Sold existing asset for $12,500 (which gives a gain of $2,500)
  • Purchased new asset for $11,000
  • Direct deposit of $1,500 to bank account.
Did the third party charge a fee? If so, how was it paid?
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Last edited by Lorin Browning; 08-11-2017 at 09:23 PM.
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  #3  
Old 08-11-2017, 10:37 PM
mnschwarz mnschwarz is offline
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Lorin,

That would be accurate yes. The only extra note in your example is the asset is in a foreign currency. Both assets, the gains and direct deposit are in the same foreign currency however I don't know if I record the change in exchange rate somewhere also. And no the third party doesn't charge a fee. Cheers.
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  #4  
Old 08-12-2017, 02:23 AM
Lorin Browning Lorin Browning is offline
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I suggest that you use a general journal entry. Doing so possibly will by-pass some of QuickBooks idiosyncrasies.

You may need to establish something called a brokerage account or investment account to take the place of what you are calling an existing asset account. The main reason for such an account is to track the value of all the investments which the “third party” has made for you. A corollary of that is to allow the possibility of multiple assets going in and out of that account. That account could be classified as either a bank-type account or as a current asset account. In practice, you could simply rename your current account, if it is current asset account and not a bank account. I prefer the current asset account rather than a bank account, but the choice is yours.

Let’s do this step by step:

(1) To record sale of existing asset:
Credit Brokerage Account for $10,000 (which gets it off the books) Note: A credit entry is what one uses when one sells an asset.
Debit Brokerage Account for $12,500.
Credit Gain on Sale of Asset for $2,500. Gain on Sale of Asset is usually an Other Income Account.
Note: The General Journal entry should be in balance and you could save it or you could enter the second part of the transaction – the purchase of the new asset. Personally I prefer saving the general journal entry and treating the purchase as a new transaction, simply to keep each transaction distinct in the books. Again, the choice is yours.
(2) To record the purchase of the new asset
Debit Brokerage Account for $11,000 to record purchase of new asset.
Credit Brokerage Account for $11,000, which reduces the amount the brokerage account but leaves a balance of $1,500 in that account.
(3) To transfer $1,500 from the brokerage account to your checking account.
Debit checking account for $1,500
Credit Brokerage Account for $1,500.
What you have done is (1) to show that there is no cash still available in the brokerage account and (2) given you an entry for reconciling your bank statement to your books.
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Last edited by Lorin Browning; 08-12-2017 at 03:22 AM.
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  #5  
Old 08-12-2017, 05:34 AM
Rustler Rustler is offline
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Took me a couple of times going through it to understand how Lorin's journal entries work. Very interesting.

I would do it differently since I need a more basic ease of understanding transactions

Assuming there is a cash type bank account established

journal entry
debit cash, 12,500
credit asset, 10,000
credit gain on sale, 2,500

debit bank, 1,500
debit asset, 11,000
credit cash, 12,500

Just makes it easier for my limited accounting knowledge to understand.
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  #6  
Old 08-12-2017, 11:42 AM
Lorin Browning Lorin Browning is offline
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Her concerns were two: One was "What is the best way to handle these transactions that never touch my accounts?" The main point of down the transaction into three steps is to help her see that a new account -- something like the brokerage account -- is needed.

Matching her bank statement was her second concern. The only cash affecting her actual bank account is the $1,500 amount. I wanted to show her how a simple general journal entry would record that transaction while providing her with a bookkeeping entry that would match her bank statement.

Personally I find it more confusing to have an account called "cash" in my chart of accounts, since I normally understand an entry such as "debit cash, 12,500" to reflect a deposit into one's bank account -- which is not something that happened in this situation.
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  #7  
Old 08-13-2017, 04:15 AM
Rustler Rustler is offline
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I always have a bank account titled checking and one titled cash, or cash on hand/petty cash.

I used that because of the restrictions to not affect the bank statement with anything other than the net deposit.
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  #8  
Old 08-13-2017, 04:27 AM
Lorin Browning Lorin Browning is offline
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My only problem with that is theoretical: It obliterates the distinction between cash and other assets.
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  #9  
Old 08-13-2017, 07:22 AM
mnschwarz mnschwarz is offline
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Much appreciated for the help guys. I've gone ahead and it all appears correct now with one minor concern. As mentioned the transaction is in a foreign currency. When I zero out the original asset sold, due to a change in the exchange rate from time of purchase, there is an outstanding amount shown in USD. I created an extra journal entry writing that difference off to the Exchange rate gain/loss account. Is this correct?
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  #10  
Old 08-13-2017, 08:21 PM
Lorin Browning Lorin Browning is offline
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The foreign exchange fluctuations are handled by the third party. They are not reported on your books at all. [An exception to this would be if you were involved in currency trading.]

What you record is the purchase price of the asset in US dollars and the sale of the asset in US dollars. The difference between those two amounts is the gain or loss in US dollars.
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