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Money: How to Track a Short Sale in Microsoft Money

Article ID: 122965

Article Last Modified on 1/19/2007

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This article was previously published under Q122965

SUMMARY

A Short Sale is the sale of a security borrowed from a lender. The borrower then sells the stock and keeps the proceeds. After a specified period of time, the borrower repays the shares of stock to the lender. To repay the stock, the investor buys the stock back using the proceeds from the original sale. The net gain or loss is the difference between the sale price and the buy back price multiplied by the total number of shares.

Generally, an investor will sell short in anticipation of falling stock prices. Typically, these type of transactions occur during a "bear market" (a market with falling prices).

Microsoft Money does not allow you to sell shares of a security prior to owning (buying) them. To track short sale investments in Money, follow the steps outlined in the "How to Track Short Sales in Money" section below.

HOW TO TRACK SHORT SALES IN MONEY

Borrowing the Shares of Stock

  1. Create a Liability Account with the name "Short Sale Liab."
  2. Create an Investment Account with an Associated Cash Account. Name the account "Short Sale Inv."
  3. After selling the borrowed stock, enter a Buy transaction for the number of shares borrowed from the broker in the investment account. Use the sale price of the borrowed stock for the buy price of this transaction. Transfer the Money from the Short Sale Liab Account.
  4. Enter a sell transaction in the Investment Account. Use the same price as the prior buy transaction. Transfer the money to the Associated Cash Account.

Repaying the Borrowed Shares of Stock

  1. Enter a buy transaction in the Short Sale Investment Account using the purchase price of the stock. Transfer the money from the Associated Cash Account.
  2. Enter a sell transaction in the Short Sale Investment Account using the original buy price (from step 3 above). Transfer the money to the Short Sale Liab Account.
The net gain or loss of this short sale investment will be the difference between the original sale and the buy back of the borrowed stock, multiplied by the total number of shares borrowed.

For example, an investor may borrow 1000 shares of Microsoft stock from a broker and sell the stock at $50.00 per share. To repay the 1000 borrowed shares, the investor buys the Microsoft stock back using the proceeds from the earlier sale. If the current price of the stock is only $40.00 per share, the difference would be $10.00 per share. The investor would gain $10,000.00 from this investment ($10.00/share x 1000 shares).

MORE INFORMATION

Using the above example, the Investment Account should contain the following transactions: 
Date   Investment    Activity/Memo  Quantity  Price     Total/Transfer
--------------------------------------------------------------------

11/1   Microsoft         Buy         1000     $50.00    $50,000.00
                      Borrowing of Stock              Short Sale Liab

11/1   Microsoft         Sell        1000     $50.00    $50,000.00
                      Sell Borrowed Stock              Cash:Short Sale


12/1   Microsoft         Buy         1000     $40.00    $40,000.00
                      Buy back stock                  Cash:Short Sale

12/1   Microsoft         Sell        1000     $50.00    $50,000.00
                      Sell stock back                 Short Sale Liab
                      to borrower


Cash balance: $10,000.00  Investment Account Value: $10,000.00
The Associated Cash Account should contain the following transactions: 
Date     Payee/Memo/Category    Payment    Deposit       Balance
----------------------------------------------------------------

11/1                                       $50,000.00    $50,000.00
         Sell: Sell Short Inv 1,000 @ $50
         Transfer from:Sell Short Inv

12/1                             40,000                  $10,000.00
         Buy: Sell Short Inv 1,000 @ $40
         Buy Investment:Sell Short Inv


Account Ending Balance: $10,000.00
The Sell Short Liab Account should contain the following transactions: 
Date     Payee/Memo/Category    Increase   Decrease       Balance
----     -------------------    --------   --------       -------

11/1                            $50,000.00                $50,000.00
         Buy: Sell Short Inv 1,000 @ $50
         Buy Investment: Sell Short Inv

12/1                                       $50,000.00     $0.00
         Sell: Sell Short Inv 1,000 @ $50
         Transfer from: Sell Short Inv


Account Ending Balance: $0.00

Additional query words: w_money selling short ghost odd lot rule 10a-1 giddy_up 3.00a 4.00 5.00 rollerbob "short sell" Investments

Keywords: kbhowto KB122965


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