 Zero Accounting Software 2023 Short Term Investment, Sale, and Gains. Get ready to become an Accountant Hero with Zero 2023. Here we are in our Custom Zero homepage. Going into the company file we set up in a prior presentation. That being, get great guitars. Duplicating some tabs to put reports in like we do every time. Right-click in the tab up top so we can duplicate it. Right-click in the duplicated tab for another duplication of the tab. Going back to the tab to the middle as the one to the right is thinking. Accounting drop-down we want the balance sheet. Then we're going to tab to the right. Accounting drop-down this time instead of the income statement. I have that custom report we made last time which is a comparative income statement allowing us to see the two months of operations thus far as we do the data input. That being January, February, and the change. If you don't have that you can just open the normal income statement and that's fine. Back to the tab to the left and let's change the date range. Drop-down, customize 2023. End of, I'm just going to go to the end of the year 2023 and update it. Alright, so we are continuing on with the second month of operations. We're going to continue with a few transactions that are not like normal and that they're not basically the day-to-day type of transactions. Last time we did a loan payment. This time we want to take a look at the short-term investments that we put on the books in the prior month. And we want to first just mention the different kind of complexities that happen with short-term investments. For example, investments in stocks and bonds. First off, note that if this is our business and we sell inventory and or do guitar lessons that investing in stocks and bonds is not the primary goal of this business. It's not what we do to generate revenue. And therefore we wouldn't normally put our personal investments in our business bookkeeping. We might have another zero accounting software to track our personal side of things, for example. So that's the first thing to note. What happens when you make a lot of money in the business and you got money in the checking account? Well, then you might want to invest it, but typically for accounting purposes you would take it out of the business in the form of a draw, right? Equity goes down, cash goes down, and then personally invest it in stocks and bonds and possibly track it on your personal bookkeeping side of things, possibly using zero to do that. Now, if you have short-term investments within the business, meaning you have excess cash, you're going to use that cash in the business, but you want to put it somewhere else for now to pull in some dividends and interest, hopefully, as you're sitting on the cash before you spend it, that's when you might park it into stocks, bonds, or some kind of savings accounts or something like that. So we're going to imagine this is in stocks and bonds for a short-term time period, but when we start to value the investments, you have a similar concept, whether you're talking about your business books or your personal books, and that is that the short-term investments will have income, hopefully related to it, in the form of interest, which typically is going to happen if you are invested in bonds, in the form of dividends, which will typically happen if you're invested in stocks, and hopefully capital gains, because the value of your stocks, for example, will go up in value, and then you might have capital gains. However, you don't actually realize those gains until you sell the stock, which adds its own level of complexities. Now, also note that when you're investing in stocks and bonds, it's common that you might not invest in individual stocks and bonds, but in mutual funds, using tools of mutual funds or ETFs or something like that to invest in the stocks and bonds, and you might have multiple mutual funds that you are investing in. Notice that on your zero accounting balance sheet, you probably do not want to list out every individual stock, maybe not every individual mutual fund or ETF, possibly only breaking out by investment institution, such as a Vanguard or your Bank of America or whatever, the institution is E-traded that you are investing in. You might want to list the actual investments, and that's one way you might want to break them out, and then when you want to look at the more detail of the investments, you look at other software, or you go to the actual platforms themselves that you're invested in to get the detail of the performance of the particular portfolios that you are in. Otherwise, you're going to make a lot of work for yourself in the accounting software, because it's not really designed here to give you that detailed analysis. It's designed here to give you the kind of overall big picture of the balance sheet, is how I would typically think of it. The other way you might want to break it out is you might be able to break out between bonds versus stocks. However, that will be difficult if you're investing in mutual funds, which have a mix of stocks and bonds. You also, if you're on the personal side of things, might want to break out between short-term investments, possibly those that are not under the umbrella of some type of retirement account, like a 401K or IRA, and long-term investments, those that are under an umbrella, because you can't pull those out until retirement, and you might have more tax implications if you were to pull them out. That might be one way that you break out your investments as well. Now also, just realize that there's other software that you might look at that can track financial investments. I think there's a personal capital has a software, I think, which might be, I think they changed names or something, but some software can pull in the ending balances from the financial institution. So you might say, hey, look, I'm connected to the bank. Why doesn't my balance sheet here show me what is exactly in my bank account? You might have your checking account not match out to what's in your bank account. You might say, hey, look, why can't I connect to my financial institutions in the same way and show my balance sheet balance as it shows on my statements? And that's because accounting software such as Xero is not designed to do that. The accounting software is designed to look at the detail, the transactions to reconcile to the bank if it just pulled in the ending balance from the financial institution, it would give you an income statement, but not an, I will give you a balance sheet, but not an income statement. We wouldn't have the detail. So you could work your investments in alignment with other software, software that can pull in just the balance sheet information, the ending balance where you stand at any particular time. That's not what Xero accounting software is designed to do. You have to make adjustments to it. Okay. So that said, you, if you have dividends and interest as you accumulate the dividends and interests, if you're taking dividends and interests and income, your checking account will go up and you can record dividend and interest income on the income statement as that happens on a cash based system like you normally would. However, if you're getting dividends and interests and they're rolling that back into the investment, then you want it, then when you get the dividends and interest, you're not going to hit the checking account, right? So it's going to be coming back into your investment account. So you'd have to record dividends and interest and then an increase to your investment account because that money had been earned and then put back in as though they gave you the money and then you invested it again in the stocks and bonds, right? And then you're going to have capital gains or losses. And those are not going to be realized until you sell the stock. So for example, if this stock goes up in value to 12,250, I might adjust for that periodically when I have my bank statements. I might say, hey, look, I'm going to report this at the current value, 12,250, not 12,000. This is what I invested, but then it went up in value. Why would I do that even though I haven't sold the stock when I don't do that for things like fixed assets? Because the stocks and bonds are traded on the stock exchange and it's similar to currency in that you have standardized units of stock and therefore we know exactly what the price is because other stock is trading for that price at that time. So although it will fluctuate over time, at least I have a pretty good idea of what the value is. Unlike fixed assets, property, planting, equipment, where every fixed asset is unique, every car is unique, every building is unique. So you can't just sell your car like that, like a snap the fingers for the same amount as a similar model because your car is different than the other model even if it was made, you know. So unlike stocks, which are all the same. So there's an argument for adjusting the value of the stock, but the problem is if I increase the value of the stock, then where does the other side go if I have not yet realized it? I'm going to have to increase this with a journal entry. It's not going to go through the checking account. I'll do it periodically. The other side could go to a liability, I mean an equity account, but normally people just put it on the income statement as other gains and losses, which if you did, you probably want it like at the bottom possibly as other income so that you can see income from normal operations as well as the income that's not from normal operations from things like unrealized gains. Okay, that said, we're going to imagine that we're actually going to sell this investment now and get the cash for it as though we're going to use the cash then to purchase more inventory and fixed assets, but when we sell it, the price went up and we're going to sell it for $12,250. So we would see the $12,250 if using bank feeds hit the checking account when we sell it if we did an electronic transfer, but we would have to then, an electronic transaction, we would have to then, I'll record two accounts. And this needs to go back down to zero. We don't want it to be a negative 250, right? And then the 250 would be a gain, which we're going to report on the income statement. All right, let's see how it would work. We can do this with a deposit form, a money in form. So I'm going to say this is a receive money form. And we're going to say it's going into the checking account and let's check it out. So let's say it comes from, we'll just say Vanguard. Let's say that's who we are getting the money from. Let's say it happened on the date of 2-2. So I'm going to say Jan-Feb-2. And then we're going to say description sale of short-term investments, something like that. And we're going to say 12,000 is going to decrease the short-term investment account. And then the other side is going to, we're also going to have 250 to make the full amount, because we're going to get a deposit for 12,250. And this is going to go into, we're going to make an income account, unrealized or realized gains and losses. So we'll say gains and losses. Now we're not going to have, this is our income accounts thus far. They don't have anything for uncategorized other income. So I'll make another income account. So let's see down here, we've got then the expenses. And they do have realized currency gains. That's interesting. But I'm going to put it into other income, which I'll name down here as let's say 8300. I'm trying to find a number that will work. Let's say 8300. I'm going to say on the income side of things, it's going to be, I'm not going to put it into normal sales or revenue. I'm going to put it into other income, which normally will be at the bottom of the income statement. So I can break it out as opposed to the normal income at the top. And we'll see what that looks like in a second. Let's save it. We'll check it out. I need a name. That would be good. Let's say gains on sale of investments. Okay. Okay. My finger is not working. They're in the wrong spaces. All right. Let's save it. All right. So there. So what's this going to do? It's going to decrease the checking account by the full. I'm sorry. Increase the checking account by the full 12,000 to 6250. It's going to decrease the short-term investment down to zero. And then the gain is going to go on the income statement, but the bottom of the income statement for the for the 250. So let's save it and check out and see if that is indeed what happens. So let's go on over and say update the balance sheet and go into the checking account to check out the checking. Check it. Check it. Check it out. We're going to go down and say we have the there it is 12,262. Is that the 12,262? It is, but it recorded sales tax. Hold on a second. I'm going to go into this. Let's drill down on this thing. I didn't want any sales tax options. Let's edit the transactions and edit por favor and say, why did it do a sales tax? I must have hit that on accident. No sales tax and then update update. Now I'm going to have to open my balance sheet back up again because I messed it up. So let me open up the balance sheet and then change the range. The home on my range needs a change because it's it's leaking. The roof is leaking on my home on the range to change. Okay. So there we have it. And then so we then recorded that. Then the other side, the investment is gone now because it went down to zero. So we don't have the short term investment. And then on the income statement, I go to the income statement and up to date it up to date it. And then I go down. We have the gains and losses in the other income. So notice we put it down here as opposed to the income line item up top because the idea being it's not part of our normal income. This is not what we normally do. We're not in the business of selling buying and selling stocks. We're in the business of selling guitars and doing guitar lessons. And so we're going to put it as an kind of an more of an unusual thing at the bottom. So we've got net income from normal operations then, which would be here. And then we've got the other kind of more unusual transactions that we broke out separately. So we can get to this net income first and then see that that difference down here. And so that's the rationale for putting the gains and losses down below. Now this gain and loss note that we actually realized the gain and loss here. Whereas if you were recording gains and losses periodically that are unrealized in alignment with just the the financial statements, then then you might record unrealized, you know, the unrealized gains and losses that you might put down here in a similar fashion. All right, let's open up our trial balance and see where we stand at this point in time. So I'm going to go back up top, go into the accounting drop down, let's go into our reports. And type in trustee trial balance, trial balance. The balance is on trial changing the date range with the drop down custom date range 2023, the end of it. We're going to update if your numbers tie out to our numbers. That is great. If not try changing the date range. If your numbers were on last time at the end of the last presentation, but they're off this time, you would think the things that were changed would have been either the checking account because we did something to that. We decreased the investment account, which is gone completely at this point in time because we took it down to zero. And we had a change to the account down here of gains on sale of investment. This one being a little bit confusing when you look at the income statement because it kind of grouped them up here where the income side of things are instead of down below because it's an other current, an other income account as we saw it on the income statement. So don't let that throw you off. So there we have it. If something is off, you can try to drill down on the number that is off. If it's a date issue, go to the source document and see if you can change the date to what it should be.