How to capture Treasury T-Bill reinvestment activity in GNUCash

Question

I use GNUCash, I like it a lot. Double-entry is awesome but sometimes it's difficult to determine the "right way" to record something. I've recently started investing in some T-Bills and I'm having a hard time trying to figure out how to capture the investment activity of T-Bills in my books. I know there is interest gained but it seems the way the FED does it, is they give you an "interest discount", up-front.

For example, if you choose to invest say $1,000 for a 2-month term and the rate is 5%, they apply the 0.05/12*2=0.0083333 or 0.833% to your money and only take $991.67 from your bank account. After two months pass, they'll deposit the whole $1,000 back into your bank account.

If you choose to have re-invest the money, say two times. Then every 2-months you'll get a little sum of money for the rate during that term -- which is defined at auction.

1. If the initial rate is 5%, as in the example above, they'll take the $991.67 from your bank account. Your investment is discounted by $8.33.
2. Then in two months they perform the auction and the rate becomes 4.8%, they'll deposit the $8.00 in your bank account.
3. Then two more months pass they do another auction and determine the rate is 5.2%, they'll deposit $8.67 into your bank account.
4. Then two more months pass, now your in the payout phase and they'll deposit the $1,000 back into your bank account.

So, I'm struggling with how to capture this in my double-entry system. Can someone share the proper way to record the investment date, all re-investment date(s), and the payout date for this example?

Answer 1

Generally accounting questions are off topic.

This seems however that you're more of trying to understand how OID works.

So consider this: you bought $1000 worth of money you'd be getting in two months for $992. The $8 difference is the OID. So the end result is that you paid for an asset $992 on day 1 and sold it back for $1000 on day 60. Since the difference is predetermined and fixed, this is considered interest income and not capital gains, so you'll record $8 against interest income account.

You then keep doing it every two months.

If you keep rolling it every two months, you'll end up with "change": the value OID of the next investment. That's what you see being deposited. Semantically, it is not the interest paid to you, it's the change from the $1000 you gave them for the investment (the redemption value of the previous investment). It doesn't make any substantial difference though.

For simplicity you can just credit these small disbursements against the interest income account instead of creating phantom $1000 in-out transactions.