Sometimes commissions are included in the security price when a trade is made

Sometimes we have trades that are booked onto our brokerage statement that have the commissions included in the price of the security (i.e. the commission amount is not reported as a separate figure).

[Note: For an example of why this happens, consult my Interactive Brokers blog, specifically this post.]

As I understand it, this will not cause a problem. Commissions on trades are added to the cost basis of a given security position. Not breaking the commissions out into a separate figure will evidently not cause a problem in the tax reporting for the partnership. A qualified tax accountant should be consulted on this for your own accounting books and procedures.

FundCount software is in constant development

If I have a complaint with the FundCount software (and I have hardly any complaints), it is this one... The developers are constantly adding new features to the software which in turn changes the useability in significant ways.

While almost all software is changed and upgrade on a yearly basis, the FundCount software is changed and ugraded on a more or less ad hoc basis.

This leads to some useability problems, I think.

More on this later after I come up with some specific examples.

Account 302 - Undistributed gains/losses ... Time to run an audit

If you're looking at the Balance Sheet for your fund in FundCount and you see an amount sitting there in the 302 account, you know it's time to run an audit (i.e. "Tools" >> "Audit").

I ran into this situation when I was working to close out the books for a particular month.

The little notice at the bottom right hand side of the screen that tells you when you have an unaudited period from a certain date should not be relied on as the only indicator of when you need to run an audit. You should run an audit anytime you have been using the software in any way and are about to start producing reports.

Dividend accruals and tax characteristics

In my opinion, any fund that uses the FundCount software should have in place a set of written policies that outline the procedures for booking dividends into their fund (or partnership).

Below is the working set of procedures I use for our fund (GCP).
Remember, this is simply a statement of our policies. It may or may not be helpful to you in your use of the FundCount accounting software.

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Unless I hear otherwise from a qualified accountant in dividend accounting matters, the accounting procedures for dividends for GCP will be as follows.

The tax characteristics of dividends must be declared when the dividends are entered into the accounting books for GCP (i.e. into the FundCount accounting software). These tax characteristics must be stated whether or not the dividend is being accrued or booked in cash.

Tax characteristics include but are not limited to the following:

1. Qualified dividend
2. Non-qualified dividend
3. Short term capital gain distribution
4. Long term capital gain distribution
5. Return of capital
6. Miscellaneous income


Regarding accrued dividends:

All accrued dividends will be accrued into a “Dividends Receivable” asset account.

If the tax characteristics of the dividends are understood at the time the accrual is made, the appropriate tax characteristics will be applied to the dividend at the time the accrual entry is made onto GCP’s books.

If the tax characteristics of the dividends are not understood at the time the accrual is made, the tax characteristic will be set to “Non-qualified dividend” until the correct determination is made.

When the cash payment from the dividend issuer is formally received into GCP's prime brokerage account, a general ledger entry will be made in the accounting software to transfer the corresponding cash amount from the “Dividends Receivable” account to the prime brokerage account on the books of GCP.

Please note: It is not possible to perform a general ledger transaction at the end of the year to change the tax characteristics of a given dividend. All changes to the tax characteristics of a dividend must be performed on the actual accrual entry of the dividend into the “Dividends Receivable” account. This means that at the end of the year, either I or someone here will go back and adjust the tax characteristics of any accrual (and also non-accrual) dividend entries that require correction regarding their tax characteristics. These changes will be made on the books at the exact date locations where they are originally entered on the books.

Also please note: It is entirely possible that a single dividend receipt or accrual transaction will need to be broken into two or more transactions at a later time. This will occur, for example, when a dividend original booked as “Non-qualifying” is subsequently discovered to have several subdivided tax characteristics. Since the tax characteristics need to be set at the moment of entry into GCP's books, it is entirely possible that a new transaction (or transactions) will be added on a retroactive basis at any time during the fiscal year before the fiscal year is formally closed out for tax accounting purposes. Unless I hear otherwise from a certified accountant, this should not be viewed as problematic. The overall cash receipt balances will not change. Only the tax treatment of those cash receipts will change.