|
|
|
Regular Member
 
Group: Forum Members
Last Login: 14/05/2010 7:49:07 PM
Posts: 30,
Visits: 171
|
|
| Hi I have some investments in managed funds and in most cases have specified that distributions are to be re-invested. Some fund managers do not do the re-investment until some time in July. I believe that I have to accrue the distribution in the previous financial year. Is there a 'best' approach to handling this scenario such that asset related reports are more accurate. My stategy to date has been. 1. I have created a bank account "Distributions on Deposit". 2. I enter the distribution as a cash receipt as if it had been received on June 30 into "Distributions on Deposit" 3. I set the value (unit price) of the fund such that the value of my holding as of June 30 + the amount in the "Distributions on Deposit" are equal to the value of my account according to the fund manager. 4. I enter an asset purchase transaction dated in July using the "Distributions on Deposit" bank account. This of course means that some of the asset elated reports give incorrect results. Is there a better way? Thanks Bryan Lovquist
|
|
|
|
|
MySF Administrator
Group: Administrators
Last Login: 17/05/2010 6:31:15 PM
Posts: 464,
Visits: 632
|
|
Hi,
A better way of handling accrued income, in other words income that is yours but you have not yet received, is to use accrual accounting. This means that when you are deemed to have earned the income (say 28th of June) you should record only a general journal that will be:
DR 1125 Dividends Receivable (or another "... receivable account under 1000 Assets)
CR 4116 Dividends Received (or whichever income account best describes the income)
Then, when you receive the money (say 5th of July) you should record the receipt or reinvestment as you normally would, and process a transaction that is the opposite of the above.
(Note that the cleaner accrual accounting solution would be to process a transaction that is
DR Bank
CR 1125 Dividends Receivable
but that would not create the dividend entry needed in reporting so this is best avoided. However, the approach can be used for other types of income, such as rent from real-estate etc)
Accrual accounting ensures that income is taxable in the correct financial year, even if the bank account does not increase until the start of the next financial year or you do not receive the new units until that time.
Regards,
MySF
|
|
|
|