Portfolio accounting is essentially about determining gain or loss. This is especially important when an investments in the portfolio is sold. Closing a position causes a realized gain or loss. Before selling, the gain or loss since purchase is only an unrealized appreciation or decline in value. Proper portfolio accounting requires an understanding of cost basics and holding period.
Realized Gain or Loss
In this portfolio accounting, the sale proceeds realized from selling a security in a portfolio is the whole amount received. This includes both cash and the fair market value of anything else received in exchange for the security. Determining gain or loss on the same of a portfolio security involves comparing the amount received with the basis of the investment. A gain occurs when the sale proceeds exceed the basis in the sold investment. There is a loss when the same proceeds are less than the basis.
Basis of a Security
The basis of a security in portfolio accounting is usually the cost of the purchase plus any associated commission and fees. The basis is different in portfolio accounting if a security is acquired by a different way than purchase. A gift during the life of a donor retains the basis of that donor. The portfolio accounting of the gift recipient uses the basis of the donor. However, the recipient of inherited property accounts for basis as the fair market value of the investment on the date of the decedent’s death.
Portfolio accounting for sold investments requires determining whether the holding period was short-term or long-term. A gain or loss is long-term when the investment is held fir more than a year. The gain or loss is short-term if the investment is sold a year or less after the purchase. The date of purchase is recorded to account for the holding period. The date of sale is the final day of a holding period.
A fund accounting software system manages business transactions and accounting activities across multiple currencies for alternative investment investors. There are so many of them in the market today. Here are eight of the most popular.
Abila Fund Accounting 100. Formerly Sage MIP, this fund accounting software is ideal for governments and nonprofits. It has earned the Campbell Award for popularity among customers on multiple occasions. This scalable system allows users to add modules to the system.
The Financial Edge. A forerunner in fund accounting software, this is specifically developed for nonprofits. It offers one of the best fund accounting solutions. Manage all accounting functions with its specific functionality and user-friendly interface.
Accufund Accounting Suite. This fund accounting software is a scalable nonprofit accounting solution that is easily implemented to cover the core accounting needs of most organizations. It also offers a specific option for government accounting needs.
Microsoft Dynamics GP. For organizations managing multi-tiered funds and unique funding streams, this fund accounting software is a great choice. It is able to automate much of the administration process and give timely detailed financial reports.
Microsoft Dynamics AX. Known as the most functionality rich ERP system in the Microsoft Dynamics family of products, it offers more than fund accounting software. It is usually installed on-premise, but can also be hosted remotely.
Microsoft Dynamics NAV. The fund accounting functionality in this system can help nonprofits track their expenses across multiple ledgers, manage grants and monitor donor contributions. It also helps with GASB compliance.
Multiview Enterprise .NET n10. A full-featured financial management solution, this fund accounting software offers 14 user-friendly modules and alerts with dashboards, imaging workflow and ViewSource 360 for users to easily monitor and control processes.
SAP Accounting. Over 30,000 global companies use its ERP Financials to manage different kinds of accounting needs, including fund accounting features. It ensures compliance with industry standards as well.
The financial services industry continues to be more electronic, global and regulated, with new capital and margin requirements and reporting rules. This requires financial institutions to address operational efficiencies and look into new ways to reduce costs. With growing volumes, a more complex clearing process and declining commission rates, firms should streamline post trade processing globally.
Aside from post trade processing, managing money is also at the core of a financial institution’s business. From profitability to investing its own fund balances on a day to day basis to underwriting bonds and holding customer assets in safekeeping, the lifeblood of a firm is tracking and investing funds to its best advantage.
For both sell and buy side mangers, effective confirmation matching and processes are an important subset of this overall post trade processing trend, and they will become more and more significant over time. As post trade processing volumes for FX, options and OTC derivatives grow, it becomes more and more important for real time confirmation matching and related services to keep up with these volume flows.
The post trade processing environment has become an area where competitive advantages are won and lost though effective solutions. Those investing in these services will clearly win out over those who do not. And this trend will most likely accelerate as volumes continue to increase, and as regulatory and compliance standards become more demanding.
Fortunately, there are so many companies today that offer world-class, post trade processing solutions that help both sell and buy side clients improve management of operational risk, reduce costs and drive competitive advantages.
These post trade processing solutions includes operations that help financial institutions process securities and derivatives to efficiently manage their middle and back office processes and workflow along with integrated solutions for bank treasury and portfolio management, settlement and clearance.