USA Accounting for transfer of cash liability into stock liability

[evint]

I have no accounting training, and I don't think I'm doing anything very complicated—I'm just trying to keep track of my personal money. I use GnuCash, but I think I could translate an answer I get to my question in general accounting terms into GnuCash's terminology.

I'm trying to figure out how to account for the following transactions. My brother-in-law has given me some money to invest for my niece. The cash received was entered under my assets with a matching cash liability. I used the money to buy some stocks. What I'd like to do is reduce my cash liability and create a new stock liability. However, when I try to do this directly in GnuCash by creating a stock account under liabilities and then adding a "buy" entry, transferring from the cash liability account, it increases rather than decreases the cash liability. What is the proper way to account for this transaction?

 

[kirby]

Did you buy the stock using your account or in her own separate account in her name?

 

[evint]

Using my own account.

 

[kirby]

When you received the cash

DR Cash
CR Liability to Niece

When you buy stock

DR Stock
Cr Cash

The simplest thing to do is to leave the Niece liability account alone until you return the cash to her. Then if she has made a gain:

DR Liability to Niece
Dr Loss
CR Cash
and your "Loss" above will be offset by the gain her stock made which goes into your books. One additional complication is that her gain goes into your tax return numbers.

And as you can tell this situation creates a continual big mess for you and your books. Much , much better if she just opened her own stock account.

 

[evint]

I think you're probably right about her having her own account. Since I'm not her guardian I have to get the parents involved to open the account. I was hoping to keep things easy for them to remove any barriers to them investing in her future, but I think keeping track of any money they give me for her is harder than I thought, and I don't want to be accused of mismanaging their money later on down the road. In any case, thank you for taking the time to answer my question and for the advice.