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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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  • Apart from my answer below, I'll say what I usually comment when people have accounting questions for recording their 'personal ledger': I do not believe this is a useful way to record things. Even as an accountant I find the concept of a 'personal balance sheet' unintuitive and non-informative. If you truly find it useful for you, then great, but consider taking some beginner level courses (I'm sure there are some free resources you could read up on to get you up to 'bookkeeper level' fairly quickly) so that you actually get more out of the process than just aggravation. – Grade 'Eh' Bacon Dec 11 '17 at 13:50
  • Thanks, I'm doing this for the fun of it. I maintained my personal records from 2004-2008 (then switched to Wasabe then Mint, now back to Gnucash). I enjoy looking at my prior spending habits like I enjoy reading my journal. Plus, as a non-finance person, I enjoy learning the basics. Doing my own books provides learning opportunities like this very question :-) – Scott Muc Dec 11 '17 at 14:52
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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 $100 USD as your 'opening investment amount', you could record as follows:

Dr. 100 USD-cash
    Cr. Equity

If you buy an $100 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

$62.50 USD-cash 
$62.50 USD-worth of EUR-cash 
                                $100 of initial equity, 
                                $25 of additional equity accrued from gains on your EUR account.
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  • I could be using Gnucash wrong, but when starting out, it guided me down the path of using an Equity:OpeningBalances as a way to initialise my accounts. I never did quite get why it was called an Equity account. So I guess the mistake I made here is that I didn't setup an opening balance for my digital currency assets. – Scott Muc Dec 11 '17 at 14:57
  • "Equity" in accounting basically means the same as what it does in common parlance. eg. "Sweat Equity" in a house means the value of the house that you have increased due to your own labours/repairs; "Share equity" means that you own a portion of the net assets of a company that you buy shares in. Really that's all that Equity means in accounting - net ownership. ie: if you own a house worth $200k, and have a $150k mortgage, you have "$50k of equity" in the house, meaning you could sell it and have $50k in cash after paying off your debt. – Grade 'Eh' Bacon Dec 11 '17 at 15:02
  • So, when you first set up a business [or whatever you are creating the 'books' for, really this is why I think 'personal accounting' gets pretty unintuitive], everything you contribute to that entity is your 'equity'. If you want to create your 'net balance sheet' today, having never recorded any accounting entries in the past, you could basically summarize all your past activity by listing all of your assets on the left [as debits], all your debts on the right [as credits], and plugging the net difference as 'equity'. ie: if you have a $40k car, $45k in car debt, the $200k house... – Grade 'Eh' Bacon Dec 11 '17 at 15:04
  • ... The $150k mortgage, $40k in IRA savings, $5k in cash, $80k in student debt, then you would have $285k in assets, and $275k in liabilities. This means you would 'start' with $10k in "equity". That "equity" represents the net amount that you have saved in your entire life. If you had started accounting for things this way when you got your first paycheck, you would see that this means you have basically spent every dollar you've ever earned + every dollar you've ever borrowed, except for $10k. – Grade 'Eh' Bacon Dec 11 '17 at 15:07
  • Cool, that's my understanding of it too. Thank you for explaining in a very straightforward way! – Scott Muc Dec 11 '17 at 15:10

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