So today I was trying to figure out how to do some double-entry bookkeeping for one of my projects. The service is similar to a bank teller - it accepts money on one end, charges some fees, and gives customer money in a digital format on the other end.

When the money comes in, say $10, we write an entry for it:

  • We got $10 in assets (cash), we increase our liabilities by $10 (we owe the customer the $10 in a digital format). Both sides add up.

Then, when we process the money, we want to divide it in three parts - what the customer gets, what we pay for processing the transaction (cost of debiting the customer), and what we earn. In standard format, we would have:

On one side:

  • our liabilities decrease by $10 (we process the transaction)

On the other side:

  • we give $9.8 of the digital money to the user (our assets decrease)
  • we earn $0.1 in fees we charge the user (our income increases)

And we aren't sure if we should be putting the built-in fees on the first side, or on the other side. If we go with the first option, it's following the convention, but we get $10.1 on one side and $9.9 on the other side - not good. If we put it on the other side, both of the sides balance, but we break the convention of where an expense should be put.

How should we be balancing this entry?

  • In GnuCash you would just use a split transaction, which seems like a fairly simple solution. – Wildcard Jul 29 '18 at 9:41

The OP does not explain "what we pay for processing the transaction (cost of debiting the customer)". Who exactly do you pay? Someone else, or your own employees/contractors? I will assume that $0.10 is paid to your own employees.

Dr $10cash from money people give you Cr $10 liability to them because it is their money in your accounts.

Dr $0.10 cash payment of paycheques or supplier invoices Cr $0.10 income statement Operating Eexpense

Dr 0.20 liability to depositors for fees they pay, resulting in $9.80 remaining liability for their money you still have. Cr 0.20 income statement Fee Revenues


Fees & liabilities

Yes, the first problem is that liabilities are being improperly booked.

If the fee you charge is fixed upon deposit then the fee should credit "Revenue", the fee charged to you should be booked by crediting cash and then debiting "Expenses", and the remaining should be booked as a liability.

If the fee is fixed upon withdrawal then this will become more complex because of the fact that a change in the fee can occur before it can be applied. In this case, the current fee should be credited as "Revenue" and some "Allowance for fee increase" should also be credited. The amount owed to the withdrawer should be booked as a liability as before.

Multiple currency bookings

I will assume that this is for a cryptocurrency service of some sort considering the comments in your question and your presence on bitcoin.se.

Accounting can become very dangerous when mixing denominations. This is why all major accounting standards mandate books be maintained single currency.

In your case, if the deposit is in USD, for example, and the liability is in BTC then two books must be maintained, one for each.

To account for your operation properly using single currency accounts, the denominations must be exchanged internally and balanced across the two sets of books.

For a deposit of BTC/depository of USD, the operation would be the same as described above, but then the cash should be credited away and the liabilities debited away from the USD books with simultaneous cash debits and liability credits on the BTC books.

Considering the extreme volatility of cryptocurrency exchange rates, denominating accounts on the wrong set of books will quickly lead to insolvency or loss from improper accounting or both.

From revenue to income

Revenue can be construed as a liability since it could theoretically exist on the balance sheet.

I mention this because all books, despite their name and quarter, are really simply long T accounts, like a blockchain. A blockchain could be subdivided into users' individual income statements & balance sheets, as the reverse of this concept.

Revenues are credited, expenses are debited. The difference, "net income", is debited away with a credit to "owners' equity".

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