Investment fund accounting

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#1
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Can anyone give guidance on where I can find handy instructions on how to do investment fund accounting?
Thanks!
 

#2
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Can anyone give guidance on where I can find handy instructions on how to do investment fund accounting?


I’m not sure what you mean by that, but when it comes to an investment account, I think about the following:

1. When a dividend is collected, I’d debit Cash and credit Dividend Income. After year-end, and when the 1099 arrives, I’d reclass that Income into more specific buckets (like Qualifying Dividends, for example).
2. When interest is collected, I’d debit Cash and credit Interest Income. If it’s muni income, I’d credit T/E Muni Income. And you’d probably have 2 accounts here, one for in state and one for out of state.
3. If OID is involved, I’d debit Basis and credit OID Income.
4. If a check is written for something like investment fees, I’d debit that and credit Cash.
5. If an investment is purchased, I’d debit Basis and credit cash.
6. If something is sold, I’d debit Cash, credit Basis and then debit or credit Loss or Gain. Then when the 1099 arrives, I’d tie it all back to the 1099B’s.
7. If mutual fund dividends get automatically reinvested, I’d debit Basis and credit Dividend Income.
8. If we have something like muni premium we need to amortize down, I’d debit Premium and credit Basis.

At this point, a lot of ideas have been presented. Your job is to assemble the above into a single monthly journal entry, which is what we do here at our firm (in Excel). I’m guessing you’ll be stating Investments at cost (i.e. tax basis). You’d tie-back your overall month-end basis number, as per your Balance Sheet, to the monthly statements, which should list each investment at cost and then a sum total. And you might have different buckets here (i.e. stocks, mutual funds, bonds, cash, etc.). Adding debt into the mix, like a margin account, shouldn’t be too difficult. Ditto for the receipt of K1’s.
 

#3
sjrcpa  
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An Accounting 101, 102 or higher textbook? All I seem to remember from college is that there is such a thing as Fund Accounting. And it is Fund Balance instead of Retained Earnings or Capital.
 

#4
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Jeff-Ohio wrote:
Can anyone give guidance on where I can find handy instructions on how to do investment fund accounting?


I’m not sure what you mean by that, but when it comes to an investment account, I think about the following:

1. When a dividend is collected, I’d debit Cash and credit Dividend Income. After year-end, and when the 1099 arrives, I’d reclass that Income into more specific buckets (like Qualifying Dividends, for example).
2. When interest is collected, I’d debit Cash and credit Interest Income. If it’s muni income, I’d credit T/E Muni Income. And you’d probably have 2 accounts here, one for in state and one for out of state.
3. If OID is involved, I’d debit Basis and credit OID Income.
4. If a check is written for something like investment fees, I’d debit that and credit Cash.
5. If an investment is purchased, I’d debit Basis and credit cash.
6. If something is sold, I’d debit Cash, credit Basis and then debit or credit Loss or Gain. Then when the 1099 arrives, I’d tie it all back to the 1099B’s.
7. If mutual fund dividends get automatically reinvested, I’d debit Basis and credit Dividend Income.
8. If we have something like muni premium we need to amortize down, I’d debit Premium and credit Basis.

At this point, a lot of ideas have been presented. Your job is to assemble the above into a single monthly journal entry, which is what we do here at our firm (in Excel). I’m guessing you’ll be stating Investments at cost (i.e. tax basis). You’d tie-back your overall month-end basis number, as per your Balance Sheet, to the monthly statements, which should list each investment at cost and then a sum total. And you might have different buckets here (i.e. stocks, mutual funds, bonds, cash, etc.). Adding debt into the mix, like a margin account, shouldn’t be too difficult. Ditto for the receipt of K1’s.



Thank you so much for the detailed guidance and sorry for the late response! It is very helpful!
To clarify, I try to teach myself on on how to do bookkeeping/accounting for investment companies (such as a registered investment advisory firm, asset management company, hedge fund, etc.). For example, what value should be used to record balance of stock investments, bond investments, derivatives? how to do journal entries for various transactions (you have given me guidance on how to do JE for an investment account, I guess, and I am also interested in knowing how to do JE from a hedge fund/investment management firm's perspective), what are the major differences in accounting for investment companies vs. other types of companies such as manufacturing, restaurants, services companies, etc.
Is there any good book or website for this?

Thank you!
 

#5
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sjrcpa wrote:An Accounting 101, 102 or higher textbook? All I seem to remember from college is that there is such a thing as Fund Accounting. And it is Fund Balance instead of Retained Earnings or Capital.


Thank you!
 

#6
cp_acwt  
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https://www.accountingtools.com/account ... investment

Take a look at the link above. It may be a good place to start. You could also look at the course descriptions at colleges that teach accounting, find the course that includes what you are looking for, and what book is used in the course.
 

#7
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cp_acwt wrote:https://www.accountingtools.com/accounting-for-investment

Take a look at the link above. It may be a good place to start. You could also look at the course descriptions at colleges that teach accounting, find the course that includes what you are looking for, and what book is used in the course.


Thank you!
This is very helpful! I also found a cpe in accountingtools.com for hedge fund accounting.
 


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