recording dividends and interest income

[mfmelb]

Mark,

What is the best way of recording the dividend and income transactions for shares and term deposits, bonds etc?
My current issue is that when I record dividend for shares and interest for fixed/term deposit at the time when the money is received, I am not getting the right performance or returns reported in TWR report. For example, when a dividend goes ex-dividend on the 22 Dec 2011 and the money is paid on the 9 Jan 2012 and I record the transaction as at 9 Jan 2012, the TWR report is indicating a good performance or return for Jan but a bad one for Dec as the price of the share drops on the ex-dividend date.
For the term or fixed deposit for say 6 months, if I record the interest received at maturity, the performance or return is good for the month the interest is received but NIL for the other months.
One way of accounting for this problem is to adjust the dividend received date to the ex-date but this then causes the cash account to have an incorrect balance at month end.
What would you recommend to address this issue of correctly reflecting the returns on the ex-dividend date and also for the cash balance. How would you record the fixed or term deposit as well.

Thanks in advance

Matt

[Mark]

Hi Matt,

To record this more precisely you could set up a 3rd investment, called "outstanding dividends" or something like this. This investment would be like a cash account (with a fixed price of $1), but hold the money you are expecting for declared but not received dividends. You could then record the dividend on the ex-dividend date and instead of depositing it into cash, deposit it into "outstanding dividends". When you actually receive the dividend, sell "outstanding dividends", and buy cash. If you want to reconcile, you can mark this investment to be ignored when reconciling, under "Investment Properties... / Other / Ignore when Reconciling".

On the fixed deposit question, you can set it up like a bond, and record the bond coupon rate and maturity date. The accrued interest will then be factored into your yield equations, so the performance won't happen all at the end when you receive payment. Make sure you have "Options / General Preferences... / Yields / Include Accrued Interest in Yield Calculations" turned on.

[mfmelb]

Mark,

One problem with the "Outstanding dividend" method is that when I record the dividend transaction for the particular stock, it will automatically deposit the cash transaction to the default cash account setup for that portfolio.
I can't find any option at the transaction level that allows me to choose a different cash account for the dividend payment (it uses the same cash account setup for the portfolio). In fact, there do not seem to be an option to choose the cash account to be use at the investment level.
Or are you suggesting that all dividends are to be manually input into the "Outstanding Dividend" account with no default cash account link? This way, you can get the overall portfolio return but not the individual investment performance/returns.

Matt

[Mark]

Hi Matt,

This method could involve some extra steps to get it to record in the cash account as described. There are a couple of options:

1) Before recording the distribution, turn off the default cash account. Do this under "Portfolio Properties..." for your sub-portfolio. Now, record the dividend, and then the buy of "Outstanding Dividend". After you record those 2 transactions, you can turn back on the default cash account. There is no transaction/investment level control over the default cash account, this is only assigned at the sub-portfolio level.

2) You could leave on the default cash account, and record the same 2 transactions (dividend and buy of "Outstanding Dividend". You will end up with a buy and sell of your default cash account for the same amount, resulting in no net change in cash when the dividend is recorded. When the dividend is actually received, just record a sell of "Outstanding Dividend", and you'll also get your automatic buy of cash recorded.