Written by 10:59 am Accounting Treatments, Software Tips & Advice

Accounting Treatment Of Trading Stock or Private Equity Fund

Accounting Treatment Of Trading stock or Private Equity Fund

Accounting Treatment Of Trading stock or Private Equity Fund In QuickBooks – Journal Entries For Share Purchased, Dividend, Disposal or Sales Of Shares, & Revaluation of Shares

Trading stock or investing in shares is an activity that involves buying a share of a company’s capital with the purpose of being a part owner of the business. The reward for share purchases or private equity investment could be price appreciation and/or dividend distribution.

While the former (share price appreciation ) happens when the company’s quoted price in the stock market increases as a result of demand outweighing supply, the latter is the proportion of the profit earned for the period which is payable on a quarterly or annual basis.

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Private Equity Fund, on the other hand, is a type of mutual funds that mobilise funds from interested top-level investors for the sole purpose of investing in private equities; shares not quoted in the stock exchange market. They are most start-ups or growth businesses with good product/market fit but are looking for additional equity investment or cash injection from a venture capitalist or angel investors.

Whichever one you are, this guide will help you understand how to treat various shares or private equity investment transactions in your books of account.

Share Purchases or Private Equity Investment

When you acquire a certain equity stake in a company or make an order for new shares at a specified or agreed market price, the accounting entries in your book is CR your bank account and DR your investment account with the value of the equity shares.

For Dividend Received on Share Holdings

The dividend earned on the equity shares is an income which is a profit or loss item. On receipt of your dividend, CR the dividend income account and DR the bank account with the actual cash paid. The same entries also apply to income earned or return on investment in equity shares of a private company.

For Disposal

When a share is disposed or sold to another investor, you need to compare the value of your shares as at purchase date against the market value (amount paid by the buyer). This will help you compute profit or loss on sale of an investment.

Here are entries to the disposal of private equity or sale of shares.

DR your bank account with the actual amount received from the sale of shares, CR your investment account with the market value and Cr your profit on disposal ( or DR loss on disposal).

Revaluation of Shares

This is a result of the daily fluctuation in the price of your equity holding in a publicly listed company. When the market value (which is the price per share multiplied by a number of shares owned) is above or below the cost of investments, it gives rise to unrealised profit or loss figure, to be treated your book. For profit, DR investment account and CR revaluation account while the reverse is applicable on a loss.

Hope you find this accounting treatment for stock trading or private equity fund transactions useful? Read more tips on accounting treatment for business transactions here

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Last modified: March 24, 2021