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Ground Rules for Treasurers

What Accounting Programs Do and Don’t Do

If treasurer is the scariest position in your club, perhaps the members have inadvertently made the job more complicated than it needs to be. It’s important for all club members to get oriented to what club accounting is and isn’t designed to do so that your club can avoid operating in ways your treasurer doesn’t have the tools to handle.

Sometimes we expect the club treasurer’s duties to be the same as those for tracking our personal finances or for being the treasurer of other organizations. The latter two roles involve maintaining one or more financial accounts and tracking all the transactions in them; regardless of whether the transactions affect taxes, we follow how all the money is being used.
In that sense, investment club accounting may be a little different from what you expect. Its primary function is to account for your club’s investing activities, not all its activities.
Club accounting is designed to:

•  Track the performance of a pool of investment assets.

•  Track ownership percentages for multiple investors who may be contributing different amounts at different times.

•  Allocate investment income, gains, losses and expenses as they occur to each member based on their percentage ownership at the time they occur.

•  Prepare the proper tax forms so that each club member can report and pay taxes on their share of the investment income, gains, losses and expenses.

•  Track each member’s investment basis to determine his taxable gain or loss on any funds he withdraws from the club.
Some important points about how club accounting programs (online or desktop-based) work:

•  They track a single pool of investment assets containing both stock and cash. There’s no way to keep money for expenses separate from money for investing. All income and expenses entered in your club accounting programs affect your investment returns.

•  Members don’t own club assets directly. They own “units,” or shares in the club whose value is tied to the value of the investment pool. Members’ percentage ownership is calculated by dividing the number of units they own by the total number of units in the club.

•  Transaction dates are critical. Income and expenses are allocated to club members on the date they occur, based on the percentage ownership on that date. No matter what valuation date you use for a member payment, a member’s percentage ownership in the club doesn’t change until the transaction date. Similarly, for a full withdrawal a member is still a member of your club until the transaction date entered for the withdrawal. 

•  Whenever a member makes a contribution, it must be recorded as a payment so that each member receives proper ownership credit for the contribution. When a member withdraws funds, it must be recorded as a withdrawal so that the proper number of units is removed from the club and ownership percentages are adjusted correctly.

•  Investment club accounting programs are designed for tracking and producing the correct tax documents for investments in stocks, exchange-traded funds and mutual funds. They aren’t designed to account for investments in real estate investment trusts, master
limited partnerships or publicly traded partnerships.

•  Only expenses related to producing investment income are deductible. These are different from the expenses you can deduct if you have business income. The rules for investment income deductions are described in IRS Publication 550.

•  Only expenses that apply to all club members should be entered in your club records. Expenses can be allocated either by percentage ownership or in an equal dollar amount to each person. There’s no way to allocate them differently. Expenses that apply to only certain members shouldn’t be paid out of your club financial accounts. Examples of this include the personal portion of BetterInvesting membership dues and expenses for entertainment activities such as holiday dinners for which you want to charge each person a different amount.
Anyone can learn to be a club treasurer. Just keep these principles in mind about this critical role:

•  Use your club financial accounts only for investment or investment-related transactions that apply to all club members.
•  Record all income, expense and stock transactions as they occur.
•  Verify the accuracy of your records at least monthly.
•  Record member contributions using the payment form and member payouts using the withdrawal form.

Laurie Frederiksen is the head of marketing and support for bivio, a provider of Web-based club accounting.

Laurie Frederiksen is the head of marketing and support for bivio, a provider of Web-based club accounting.


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