Bitcoin Accounting

Practical Bitcoin accounting examples

Bitcoin for Business

Practical Bitcoin accounting examples

Use Case 1: Retail Store Converting Bitcoin Payments to Euros
Use Case 2: Retail Store Retaining 50% of Bitcoin Payments
Use Case 3: Professional Service Retaining Bitcoin for Long-Term Investment
Use Case 4: Business Owner Sells 50% of Bitcoin After Price Increase

Use Case 1: Retail Store Converting Bitcoin Payments to Euros

Scenario: A small bakery accepts Bitcoin as a payment method but immediately converts all Bitcoin received into euros to avoid exposure to cryptocurrency volatility.

Example:

Bitcoin Conversion Rate: 1 Bitcoin = €40,000.
Transaction 1: Customer purchases multiple pastries for €20.
- Bitcoin equivalent: (20 / 40,000) = 0.0005 Bitcoin = 50,000 Satoshis.
- Conversion fee: 1.5% (€20 × 0.015) = €0.30.
- Net received: €20 - €0.30 = €19.70.
Transaction 2: Customer purchases coffee for €5.
- Bitcoin equivalent: (5 / 40,000) = 0.000125 Bitcoin = 12,500 Satoshis.
- Conversion fee: 1.5% (€5 × 0.015) = €0.075.
- Net received: €5 - €0.075 = €4.925.

Summary of Transactions:

Total Sales: €25.
Total Fees: €0.375.
Net Euros Received: €24.625.

Accounting Implications:

Record total sales (€25) as revenue.
Deduct conversion fees (€0.375) as an expense.
No Bitcoin holdings appear on the balance sheet as all amounts were converted immediately.

Use Case 2: Retail Store Retaining 50% of Bitcoin Payments

Scenario: The same bakery chooses to retain 50% of Bitcoin payments as a treasury asset, while converting the other 50% into euros.

Example:

Bitcoin Conversion Rate: 1 Bitcoin = €40,000.
Transaction from customer: Customer purchases pastries for €50.
- Bitcoin equivalent: (50 / 40,000) = 0.00125 Bitcoin = 125,000 Satoshis.
- Conversion (50%): €25 worth of Bitcoin = 0.000625 Bitcoin = 62,500 Satoshis.
  - Conversion fee: 1.5% (€25 × 0.015) = €0.375.
  - Net received in euros: €25 - €0.375 = €24.625.
- Retained in Bitcoin (50%): 62,500 Satoshis = 0.000625 Bitcoin.

Summary of Transactions:

Total Sales: €50.
Fees: €0.375.
Net Euros Received: €24.625.
Bitcoin Retained: 62,500 Satoshis.

Accounting Implications:

Record total sales (€50) as revenue.
Deduct conversion fees (€0.375) as an expense.
Retained Bitcoin (62,500 Satoshis) appears on the balance sheet as a digital asset.
Unrealized Gain: if the bitcoin valuation at fiscal year-end is higher or lower, there will be an unrealized gain or loss that will be disclosed in financial notes but not realized as income

Use Case 3: Professional Service Retaining Bitcoin for Long-Term Investment

Scenario: A freelance graphic designer accepts Bitcoin as payment and retains all received Bitcoin as a long-term investment.

Example:

Bitcoin Conversion Rate at Payment: 1 Bitcoin = €30,000.
Transaction from customer: Client pays for services worth €3,000.
- Bitcoin equivalent: (3,000 / 30,000) = 0.1 Bitcoin = 10,000,000 Satoshis.
Year-End Valuation:
- Bitcoin Conversion Rate at Year-End: 1 Bitcoin = €35,000.
- Valuation of Bitcoin Holding: 0.1 Bitcoin × €35,000 = €3,500.
- Unrealized Gain: €3,500 - €3,000 = €500.

Summary of Transactions:

Total Revenue Recognized: €3,000.
Bitcoin Holding: 0.1 Bitcoin valued at €3,500 on the balance sheet.
Unrealized Gain: €500 disclosed in financial notes but not realized as income.

Accounting Implications:

Record revenue (€3,000) at the time of service.
Bitcoin retained (0.1) valued at €3,500 on the balance sheet.
Unrealized gains are tracked but not included in profit/loss statements.

Use Case 4: Business Owner Sells 50% of Bitcoin After Price Increase

Scenario: A business owner makes three Bitcoin purchases during the year, holds the Bitcoin as an asset, and sells 50% after a significant price increase.

Example:

Bitcoin Purchases from customers:
- Purchase 1: €2,000 at €20,000/BTC = 0.1 Bitcoin = 10,000,000 Satoshis.
- Purchase 2: €3,000 at €25,000/BTC = 0.12 Bitcoin = 12,000,000 Satoshis.
- Purchase 3: €5,000 at €30,000/BTC = 0.1667 Bitcoin = 16,670,000 Satoshis.
- Total Bitcoin Held: 0.3867 Bitcoin = 38,670,000 Satoshis.
Year-End Valuation:
- Bitcoin Price at Year-End: €40,000/BTC.
- Total Value: 0.3867 Bitcoin × €40,000 = €15,468.
- Unrealized Gain: €15,468 - €10,000 (total cost) = €5,468.
Sale of 50% of Bitcoin:
- Bitcoin Sold: 0.19335 Bitcoin.
- Sale Proceeds: 0.19335 Bitcoin × €40,000 = €7,734.
- Cost Basis (Weighted Average):
  - Total Cost: €2,000 + €3,000 + €5,000 = €10,000.
  - Weighted Average Price: €10,000 / 0.3867 Bitcoin = €25,850/BTC.
  - Cost of Bitcoin Sold: 0.19335 Bitcoin × €25,850 = €4,999.
- Realized Gain: €7,734 - €4,999 = €2,735.

Summary of Transactions:

Bitcoin Remaining: 0.19335 Bitcoin valued at €7,734 (at €40,000/BTC).
Realized Gain: €2,735 included in income statement.
Unrealized Gain: €5,468 disclosed in financial notes (including unrealized value of remaining Bitcoin).

Accounting Implications:

Record the sale proceeds (€7,734) as income.
Deduct the cost of Bitcoin sold (€4,999) to calculate realized gain.
Retained Bitcoin (0.19335) appears on the balance sheet valued at €7,734.
Unrealized gains of €5,468 on retained Bitcoin disclosed in financial notes.