Before knowing the journal entries of Hedge fund, you must know what is hedge fund?. From investor point of you, it is investment for protecting from future risk. There is big risk investment directly in shares. Hedge fund is operated by hedge fund company. All investment in and, real estate, stocks, derivatives, and currencies, future, forward contracts, options and swaps are hedge fund investment.
Journal Entries In the Books of Investor
1. When Investor Invests money in Hedge Fund
Hedge Fund Investment Account Debit
Bank Account Credit
Logic : Hedge Fund Investment is increase in total asset of investor, so it will be debit. Current asset has decreased due to transferring cash through bank, so, bank account will credit.
2. When Investor gets gain on His Investment
Bank Account Debit
Gain on Hedge Fund Investment Account Credit
Logic : All gains will credit because it increases the capital which is the part of liability of business. So, Gain on Hedge Fund Investment Account will be Credit. We have increased our current asset by getting cash in our bank account as net gain. ( Actually when market boom, your hedge manager will sell your stock or asset and gain whose part will give to you. )
3. Investor Pays the His Asset management fees and Performance Fees to Hedge Fund Company
Asset Management Fees Account Debit
Performance Fees Account Debit
Bank Account Credit
Logic : All expenses will debit. So, asset management fees, performance fees will debit and bank account will credit because we have paid it and it has decreased our current asset.
Journal Entries In the Books of Hedge Fund Company
1. When Hedge Fund Company gets Fund from Investors
Bank Account Debit
Hedge Fund from Investors Account Credit
2. When Hedge Fund Company Starts to Invest for Minimize risks and Maximize profit
Real Estate Account Debit
Stock Account Debit
Derivatives Account Debit
Currencies Account Debit
Put Option Account ( Asset ) Debit
Asset Receivable Account ( on the Basis of Forward Contracts) Debit
Premium on Forward Contracts Account Debit
Bank Account Credit
Logic : Any new buying of asset by hedge company will increase the asset of company. So, it will debit. If there is some loss due to buying of asset for future or forward gain, we will debit it in the form of premium on forward contract (more detail, you can read at here).
3. When Hedge Fund Company gets Gain from Different Investments
Bank Account Debit
Gain on Hedge Fund Investment Account Credit
4. Hedge Fund Company gets Asset management fees and performance fees.
Bank Account Debit
Asset Management Fees Account Credit
Performance Fees Account Credit
5. When Hedge Fund Company Gives profit to Investors
Gain on Hedge Fund Investment Account Debit
Bank Account
Related : Hedge Accounting
