Treasury Note bought/sold - Schwab vs. Quicken (edit)

dogwind

Listing the order of entries to understand the answers you may give. Bottom line when I got the money back for the T Note it came up as income on a 2023 Inc/Exp report I ran.

1. Bought T Note 6/2022 - shares and price match Schwab and Q. Q calls the action Bonds Bought. There is no Category box for this transaction when I double click the entry.
2. I paid accrued interest same day - That has a Category box _Accrued Int and the action is MiscExp.
3. Few days later received interest - that action is Int Income and the description in the entry says _IntInc, but I double click the entry there is no category box only a greyed out "Category for Misc" box that says: requires 'Misc' amt.
4. 01/2023 received interest same as #3
5. 01/2023 Received face value for the Note and Q called the action a Deposit, category line empty.

It may be that I need to change Deposit in #5 to Bond Sold? Will Quicken prompt me to account for the difference in amounts?

Below is just investing questions about T Notes:

The difference between discount price and face value is interest?

I am receiving 3 interest amounts?

The two (in #3 and #4) plus the discount vs face value amount minus the accrued interest?

And that should match the 2.125% designated in the name of the T Note?

Thank you for any comments on how to change things and the "why" if you have time.

Bob

Tom Young

"Bought T Note 6/2022 - shares and price match Schwab and Q. Q calls the action Bonds Bought. There is no Category box for this transaction when I
double click the entry."

Yes, and that's exactly the correct accounting for the transaction. In Quicken-speak a "Category" refers to an income or expense, and the purchase of a security, a Balance Sheet asset, is NOT an income or expense, it's the exchange of one asset (cash) for another asset (the bond). All the action here takes place on the Balance Sheet.

"I paid accrued interest same day - That has a Category box _Accrued Int and the action is MiscExp."

That is not actually the correct accounting from an accountant's viewpoint, but it's Quicken's way of trying to not confuse the average non-accountant user.

The correct accounting here would be to create another asset, something like a receivable for the interest you paid to the prior owner of the bond because you're going to get that money back in the next coupon payment. So for example if the next coupon was for $10 say and you paid half of that ($5) to the previous owner. So at the next $10 coupon payment $5 of that would go to reduce the receivable to $0 and the other $5 would be accounted as interest income.

Quicken instead creates a phony interest "expense" (_Accruent Int) for that $5 paid the prior owner but then gives you the full $10 as income (_IntInc). The "bottom line" net income overall is the same - $5 - but the presentation in Spending Reports isn't exactly proper and if the payment of accrued interest is in one period and the receipt of the income is in a different period you end up with timing differences. (I created a pseudo-security call "Accrued Interest" that I use in these situations, "buying" the Accrued Interest when paid then "selling" the Accrued Interest and my cost when the coupon is received.)

"Few days later received interest - that action is Int Income and the description in the entry says _IntInc, but I double click the entry there is no category box only a greyed out "Category for Misc" box that says: requires 'Misc' amt."

Any Category that has a first character of the underline (_) IS a Quicken Category, one that only the program can use, really. The "action" of "IntInc" in the Action box of the Transaction List creates the Category of _IncInc.

"01/2023 received interest same as #3"

Each coupon payment from a bond will be accounted for in the same way.

"01/2023 Received face value for the Note and Q called the action a Deposit, category line empty."

You simply cannot rely on downloads into Investment Accounts to get the correct accounting treatment, and here's one example. You want to review all transactions - most of which will be fine - before allowing the transactions into the Transaction List. In this case you'd report a "Sale" of the Bond.

"The difference between discount price and face value is interest?"

Broadly speaking discounts and premiums from face value is a form of interest adjustment, up and down. So if at the first of the year you bought a $1,000 bond for $900 and got the $1,000 at maturity at the end of the year, you know that your real "interest income" on that bond was somewhere north off 10%. The tax treatment can be different however.

"I am receiving 3 interest amounts? " "The two (in #3 and #4) plus the discount vs face value amount minus the accrued interest?"

Not sure of what you're asking here, really. Assuming you paid accrued interest, get a coupon, and bought at a premium or discount, I guess you might look at that as 3 different elements of your net interest income.

"And that should match the 2.125% designated in the name of the T Note?"

The interest in the name of the note if you're buying an outstanding note that trades in the market can have little to do with your actual interest. If current interest rates for notes that mature in 5 years is 5% say, and you buy a note that has a maturity of 5 years from now that when issued was paying a 2% interest rate, the market will discount that note to get something like a 5% overall return, even though the note has "2%" in its name.