ACCOUNTING RULE - ESPP Accounting
(10/6/2004: This accounting rule has been retired. Please see detailed discussion in this post.)
As I'm believer of the "immediate-sale" ESPP strategy, it's reasonable for me to accrue ESPP expected appreciation monthly for better net worth calculation accuracy. To achieve this purpose, the following accounting rules are followed:
1) Two accounts, "ESPP Withholding" and "ESPP Implied Earnings", are created in MS Money.
2) With every payroll, deduction for ESPP purchase is booked as a transfer to "ESPP Withholding" account.
3) In addition, with every payroll, approximately 17% of the ESPP deduction value is booked as a transfer from the "ESPP Implied Earnings" to "ESPP Withholding"
4) Only "ESPP Withholding" account is included in Net Worth calculation.
5) On the last day of each six-month ESPP enrollment period, an entry reperesenting the total outstanding balance in the "ESPP Implied Earning" account is booked to transfer this amount from the "ESPP Withholding" account to the "ESPP Implied Earnings" account
6) On the last day of each six-month ESPP enrollment period, the purchase of MSFT ESPP stocks is booked (although the transaction happens days after in reality). This is to allow immediate recognition of the real appreciation part of the stock in the last month of each enrollment period and avoid sudden drop of net worth caused by 5).
In order to reflect the potential tax liabilities associated with capital gain and loss of my portfolio, the following accounting rule is adopted: Read
To appropriately reflect car ownership value and expenses in net worth calculation, the following account rules are adopted: Read
