Here are the facts then my question…
Bank-Transfer $1k to investment account
Investment account-Receives $1k transfer from bank
Then, invest the $1k
Results in $1k debit from bank and $1k credit to investment account. I categorize these both as transfers. Simple.
But, all the stock purchases made with the $1k also show in my transactions. There is no corresponding and offsetting transaction.
How do I handle the stock purchase transactions? What type and category? It’s not really an expense.
Thanks!
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What you do with investments is a matter of personal preference. Some people will treat the purchase transactions as expenses and the subsequent sale transactions as income. Personally, I have a catch-all hidden transfer category called Investments that I assign all purchases, sales, dividends, capital gains, and redistributions. This will probably cause me some balance issues in the future when I sell funds at a net gain, but for now, treating the investment transactions as a black box works well enough for my budgeting needs.
@cculber2 is right, it is personal preference. While he uses just one transfer account (Investments), I use multiple transfer accounts; one called Transfer-Purchases and one called Transfer-Sales. The stock purchases go into the first one and stock sales goes into the second one.
Thinking down the road some, you may have dividends as well as gains and/or losses from selling those stocks. I assume you are investing in a taxable account, not a retirement account. When dividends hit that account, I would code them as dividends (income) as you will need to track them for tax purposes. If you make a sale and have a gain, I would make a manual transaction to record that gain. Same thing for losses. I like to have everything in my Tiller sheet.
This goes way beyond your post but curious as to why you are buying individual stocks.
Blake
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I would argue that it is indeed an expense. You spent money and received something in return. That is the very definition of “expense.” Later on, you’ll presumably sell that thing and receive some money in exchange.
As cculber2 and Blake say, it is indeed a personal preference. I use a hybrid of what they’ve discussed. In my non-taxable accounts, I treat the transfer into the account as an expense, and everything that happens inside of it (purchases, sales, dividends, etc) is categorized into a hidden “Investment Account Activity” category. For my taxable accounts, the transfers in and out are treated as transfers, the purchases and fees as expenses, and the sales and dividends as income. My capital gains taxes are tracked in a different sheet but someday I’ll get that integrated into my Tiller sheet.
Individual stocks can provide far superior returns than indexes, at higher risk of course. I’m very glad I was largely in individual stocks last year.
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aronos:
I would argue that it is indeed an expense. You spent money and received something in return. That is the very definition of “expense.” Later on, you’ll presumably sell that thing and receive some money in exchange.
Accounting principles dictate that spending cash results in an asset or an expense. Expenses are consumed, assets are not. Expenses run through the P&L. Assets go on the Balance Sheet. That stock you bought is an asset. It is on your Balance Sheet. It is sitting in your brokerage account. If you link that brokerage account to Tiller, it will be in Balances tab which is your Balance Sheet. To take it to the extreme, if you spent $500,000 cash for a house, that would be an asset, not an expense.
Blake:
curious as to why you are buying individual stocks
I will leave this one for another day.
Cheers,
Blake
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True but this isn’t really accounting. 
I’ll throw my two cents in. I treat the initial transfer into my brokerage account as “Savings” and everything else as “Transfer”. That lets me keep track of everything I’m saving as a budgeted item and ignore everything else.
At the end of the year there are hundreds of interest, dividend, buy, sell, and other transactions from the brokerage accounts that don’t matter to my budget. I use Tiller for budgeting. And it’s much more efficient to get my investment performance straight from my brokerage account.
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Having spent most of my professional career in the accounting industry, please let me elaborate. Others may find this helpful too. Although I have never seen Tiller referred to as accounting software, it can and does function as the sole accounting system for many users and small business owners. The transactions tab has all the P&L data and the balance history tab has all the balance sheet data. The P&L report is the P&L and the balances tab is the Balance Sheet. These transactions and balance history tabs are the core foundation of Tiller. Tiller needs this foundation in place to create and build all the value-added templates which are what users want. When you think about it, all users have a business based on that saying…running a household is like running a business. While most of the posts on this community specifically relate to the value-adds, many are really nothing more than common accounting questions. While most users understand the basics (cash in and cash out), few are bookkeepers or accountants. My comments are usually through the prism of more formal accounting principles. However, based on the flexibility that Tiller provides and that other saying…you are the CEO and CFO of that household business you are running…users can treat transactions as they like. Cheers, Blake
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@Blake - great post. I don’t want to explicitly track stock bases by lots, etc. in Tiller. But from time to time I will need to sell stock to raise the money to pay for expenses. How do you recommend we categorize that transaction in terms of the income statement? Or could it remain a transfer because those proceeds ultimately get sent to checking to pay bills? the capital gain would be good to see on the income statement though.
I’m not sure how active @Blake is here in the community anymore, but recommendation would be to treat it like income vs a transfer because ultimately it is income to pay for other expenses.
At the end of the day, you should do whatever makes sense to you based on what you are trying to accomplish in your sheets.
However, you might consider the following:
I assume you have a taxable brokerage account. Link the brokerage account to Tiller. Code all transfers into and out of the brokerage account as transfers. Code all the activity occurring in the brokerage account as transfers, except for dividends (income), interest (income), and fees (expense). When you have a sale transaction, make a manual transaction and code any gain as (income) and any loss as (expense). The balance sheet side of things will take care of itself since the brokerage account is linked to Tiller.
Treating the transfers into and out of the brokerage account as income or expense has the potential to clutter up your P&L which you can and should generate from Tiller. Coding as transfers can be cleaner since you can hide those transfer categories. Either way, the net end result to the P&L should be the same.
Your online brokerage account tracks tax basis by lot. Given this is a taxable account, when you sell you can use the specific identification method versus FIFO, LIFO, etc. If you want to change the tax lot sold after you have made the sell trade, you have until the settlement date which is two business days after the trade date. This has saved me on more than one occasion.
Since it appears you might be using these transfers for short term needs, you might consider investing those funds into a safer investment vehicle, such as a savings account, online saving account, CD, etc. Investing in stocks exposes you to more risk than you might want to assume. Your goal should be safety in principal, not potential for income.
I hope this is helpful.
Cheers,
Blake
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Thank you for such a thoughtful response. That all makes sense.
I have to decide if the work it takes to track each purchase and sale is worth the insight. It would be a lot of work to track each lot this way in Tiller. Too bad that the brokerage doesn’t automatically code it in some way in the transaction data.
@4tomop ,
Regarding your reply about tax lots, please see here and here.
The first one is the positions by tax lot from one of my Etrade accounts. The second one is the Excel file I get when I export. If you change column B to a Googe Finance formula, then you can see your paper gain/loss in real time. You can move it into Tiller if you want.
The insights provided in these two files is priceless.
Cheers,
Blake
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