How to account for digital currencies in a double ledger book
I put my personal finance records in GnuCash and I would like to understand how to best account for digital currency transactions. My book is for tracking EUR transactions.
Scenario 1: I hold 1 BTC and I choose to exchange it for EUR. I believe what I should do there is credit Equity:DigitalCurrencies by ~14000€ and credit something like Assets:CurrentAccount by ~14000€. This would not show up as income, it's similar to any sale of any other asset I may hold.
Scenario 2: I purchase some BTC for 1000€. So I would debit Assets:CurrentAccount, but I'm not quite sure what should be on the other side of this transaction. Adding an Expense isn't quite right, so I guess I just credit something like Assets:DigitalCurrencies. This would be tracked in EUR though. If I sell the same amount of BTC that I originally purchased for 1500€ do I create a split transaction here where I debit Assets:DigitalCurrencies by 1000€ and add a 500€ line-item in Income:CapitalGains
Scenario 3: Same as Scenario 2 but how do you account for partial selling of the asset?
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You have a few misconceptions about accounting, I think. For one, I'm not sure why you are attempting to credit Equity in Scenario 1. Equity is the combination of your initial investment + all your accrued earnings to date. In your scenario 1, you are simply exchanging 1 asset for another. 'Digital currencies' are not treated differently than any other investment-type asset in accounting.
If you first deposit 0 USD as your 'opening investment amount', you could record as follows:
Dr. 100 USD-cash
Cr. Equity
If you buy an 0 USD-worth of EUR, Debit that EUR-asset, and Credit the Cash you spent on it. ie:
Dr. EUR-cash 100
Cr. USD-cash 100
If you accrue gains on your EUR [or BTC, or shares, works exactly the same except that true accounting standards have slightly different rules about when to accrue gains - none of this matters to an individual doing simple GNUcash recording], say, you want to show your gains at the end of the year when the EUR grows by 25% since you bought it, enter that against income:
Dr. EUR-cash 25
Cr. Gains on EUR-cash 25
Now assume you sell half of that EUR back for USD, simply reduce your EUR position by half and enter the debit to your USD account:
Dr. USD-cash 62.50
Cr. EUR-cash 62.50
You can see that if you enter the above journal entries, you will be left at the end of the day with the following balance sheet:
Debits Credits
.50 USD-cash
.50 USD-worth of EUR-cash
0 of initial equity,
of additional equity accrued from gains on your EUR account.
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