How to Record Change in Value of Investment in QuickBooks

Recording an investment on your balance sheet is simple, but tracking its fluctuating value requires careful and consistent bookkeeping. Whether you're dealing with publicly traded stocks that change daily or other securities that are revalued periodically, QuickBooks handles these adjustments through journal entries. This guide will walk you through setting up the necessary accounts and provide step-by-step instructions for recording both unrealized and realized gains and losses on your investments.

Start with the Right Chart of Accounts Setup

Before you can track any changes, you need a proper account structure. A disorganized chart of accounts can turn a simple adjustment into a time-consuming cleanup project. To properly track investments, you need a few key accounts in place.

Here are the four accounts you’ll want to create:

• Investment Asset Account: This is where the investment lives on your balance sheet.
  • How to set it up: Create a new account with the Account Type of `Other Current Asset` (if you plan to sell it within a year) or `Other Asset` (for long-term holdings). Name it descriptively, such as "Investment in Public Stocks" or "XYZ Corp. Holdings." Create a separate asset account for each distinct investment portfolio to keep things clean.
• Unrealized Gains and Losses Account: This account tracks the "paper" gains or losses on investments you still own. Its balance will fluctuate as the investment's market value changes.
  • How to set it up: Create a new account with the Account Type of `Other Income`. Name it "Unrealized Gains/Losses on Investment." This income shown on your Profit & Loss statement isn’t taxable until the investment is sold, but it’s crucial for accurate financial reporting under Generally Accepted Accounting Principles (GAAP).
• Realized Gains and Losses Account: When you sell an investment, the profit or loss becomes “realized.” This account captures that final, taxable gain or loss.
  • How to set it up: Create another account with the Account Type of `Other Income`. Call this one "Realized Gains/Losses on Investments." Keeping this separate from unrealized gains is critical for both tax purposes and clear reporting.
• Investment Income Account: If your investments pay dividends or interest, you'll need a place to record that income stream.
  • How to set it up: Create a new account with the Account Type of `Other Income` and name it "Dividend Income" or "Interest Income from Investments."

With these accounts established, you are now ready to record your investment activities correctly.

Recording the Initial Purchase of an Investment

Every journey starts somewhere, and for an investment, that start is the purchase date. This transaction establishes the investment's cost basis, which is the total amount you paid for the asset, including any fees or commissions. Recording this correctly is non-negotiable, as this figure is the benchmark for all future gain or loss calculations.

Let’s say you purchase 100 shares of Company A at $50 per share, for a total cost of $5,000, paid from your business checking account.

Here’s how to record it using a journal entry:

1. Navigate to + New and select Journal Entry.
2. Set the date of the purchase.
3. On the first line, select your investment asset account (e.g., "Investment in Public Stocks"). Enter $5,000 in the Debits column. This increases the value of your assets.
4. On the second line, select the bank account you used for the purchase (e.g., "Business Checking"). Enter $5,000 in the Credits column. This decreases your cash balance.
5. Add a memo for clarity, such as "Purchased 100 shares of Company A."
6. Click Save and close.

Your balance sheet now shows a $5,000 increase in your investment asset and a corresponding $5,000 decrease in cash.

How to Record Unrealized Gains and Losses

An unrealized gain or loss is the change in an investment's value before you sell it. It’s a “paper” gain or loss. For financial reporting purposes, especially if you follow accrual-basis accounting, you should periodically adjust the investment's carrying value to reflect its current market price. This is often called a "mark-to-market" or "fair-value" adjustment.

These adjustments are typically made at the end of a reporting period, such as month-end, quarter-end, or year-end.

Example: Recording an Unrealized Gain

Following our previous example, you bought 100 shares for $5,000. At the end of the quarter, you check your brokerage statement. The market price of those shares has increased to $60 per share, making the total value $6,000.

You have a $1,000 unrealized gain ($6,000 market value - $5,000 cost basis). Here’s the journal entry to record this:

1. Navigate to + New and select Journal Entry.
2. Use the last day of the reporting period as the date.
3. On the first line, select your investment asset account ("Investment in Public Stocks"). Enter $1,000 in the Debits column. This increases the investment's value on your balance sheet to its correct market value of $6,000.
4. On the second line, select your "Unrealized Gains/Losses on Investment" account. Enter $1,000 in the Credits column. This recognizes the gain as income on your Profit & Loss statement.
5. Add a memo, like "Q1 mark-to-market adjustment for Company A stock."
6. Click Save and close.

Example: Recording an Unrealized Loss

Now, let's say in the next quarter, the market experiences a downturn. Your 100 shares, which had a recorded book value of $6,000 at the end of the last quarter, are now trading at $55 per share, for a total market value of $5,500.

You have a $500 unrealized loss for this period ($6,000 book value - $5,500 current market value). You need to make an adjusting entry to decrease the investment's value.

Here’s the journal entry:

1. Navigate to + New and select Journal Entry.
2. Use the last day of the reporting period as the date.
3. On the first line, select your "Unrealized Gains/Losses on Investment" account. Enter $500 in the Debits column. A debit to an income account reduces its balance, correctly reflecting a loss for the period.
4. On the second line, select your investment asset account ("Investment in Public Stocks"). Enter $500 in the Credits column. This reduces the investment's value on your balance sheet from $6,000 to $5,500.
5. Add a descriptive memo, such as "Q2 mark-to-market adjustment for Company A stock."
6. Click Save and close.

After this entry, your asset account balance is $5,500, which matches the market value, and your Profit & Loss reflects the $500 loss for the period.

How to Record Realized Gains and Losses

A gain or loss becomes "realized" when you sell your investment. This is the moment your paper gain or loss converts into an actual, taxable event. The accounting for a sale is a multi-step process: you must record the cash received, remove the investment from your books at its current carrying value, and recognize the final realized gain or loss.

Critically, when an investment that had unrealized gains or losses recorded is sold, all prior unrealized entries associated with that investment must be reversed.

Example: Selling an Investment for a Realized Gain

Let's continue our example. Your investment's original cost was $5,000. Its current book value on your balance sheet is $5,500 due to past fair-value adjustments. Now, you decide to sell all 100 shares for $75 each, receiving a total of $7,500 in cash.

First, calculate the realized gain. The realized gain is always calculated as Sales Price minus Original Cost Basis.

$7,500 (Sales Price) - $5,000 (Original Cost) = $2,500 Realized Gain

Next, determine the net unrealized gain or loss currently on the books for this investment. You initially recorded a $1,000 gain and then a $500 loss, so you have a cumulative net unrealized gain of $500 still associated with this asset.

Now, assemble the journal entry to reflect the sale:

1. Navigate to + New and select Journal Entry.
2. Use the date of the sale.
3. Line 1 (Record Cash Received): Select your bank account. Enter $7,500 in the Debits column.
4. Line 2 (Reverse Unrealized Gain): Select your "Unrealized Gains/Losses on Investment" account. To reverse the cumulative $500 gain, enter $500 in the Debits column.
5. Line 3 (Remove Investment Asset): Select the "Investment in Public Stocks" account. Enter its current carrying value, $5,500, in the Credits column. This removes the asset from your balance sheet.
6. Line 4 (Record Realized Gain): Select the "Realized Gains/Losses on Investments" account. Enter the calculated gain of $2,500 in the Credits column.
7. Confirm your debits ($7,500 + $500 = $8,000) equal your credits ($5,500 + $2,500 = $8,000).
8. Add a memo like "Sale of 100 shares of Company A."
9. Click Save and close.

This single entry accomplishes four things: it shows the cash came in, clears out the paper gain from your P&L, takes the investment off your balance sheet, and books the real, taxable profit correctly. By zeroing out the unrealized gain associated with the sold asset, you avoid recognizing the same gain twice.

Final Thoughts

Properly recording changes in investment value is about maintaining an accurate balance sheet and a truthful profit and loss statement. By setting up distinct accounts for unrealized and realized gains and using journal entries for mark-to-market adjustments and sales, you ensure your records in QuickBooks are both compliant and transparent.

While correct bookkeeping is the foundation, understanding the tax treatment of investment activities—from preferential capital gains rates to complex wash sale rules and varying state-level tax laws—is a different challenge. Manually researching a client's specific tax situation across federal and state codes can be a drain on your time. This is where AI assistants, designed ground-up for tax research, can become an invaluable part of your workflow by delivering accurate, citation-backed answers in seconds. This lets you shift your focus from finding information to providing strategic advice, powered by Feather AI.