Accounting Issues Related to Bitcoins

• Date: 01 January 2015
• DOI: http://doi.org/10.1002/jcaf.22016
• Author: Cecily Raiborn,Marcos Sivitanides
• Published date: 01 January 2015

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© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22016

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Cecily Raiborn

and Marcos Sivitanides

Despite the frequent mention of Bitcoin in recent

years in the press and business publications,

many people are still uncertain what this crypto-

currency is or how it works. And although bitcoins

(BTCs) are now an accepted medium of exchange

for some businesses and not-for-profit organiza-

tions, no specific accounting guidance has been

issued for these transactions. This article provides

some basic information about BTCs and addresses

six specific financial accounting issues: asset

classification, mining activity, investment holdings,

exchanges, merger and acquisition (M&A) transac-

tions, and disclosure. © 2015 Wiley Periodicals, Inc.

A ccounting Issues Related to Bitcoins

Bitcoins: they’re

mentioned in

business news-

papers, current peri-

odicals, television

shows, and movies. But

often, when a discus-

sion about bitcoins is

attempted, the most

common response is,

“I’ve heard of them

but am not really sure

what they are or how

they work.” And there

has been little acknowl-

edgment of bitcoins

(BTCs) in accounting

literature; typing in “Bitcoin”

into the Financial Accounting

Standards Board (FASB) search

engine in early 2014 provided

this message: “Sorry no results

found on the search terms you

entered.”

But the use of cryptocurren-

cies, of which Bitcoin is the most

familiar, is increasing. From

June to December 2013, Bitcoin

transactions increased from

1,700 per hour to over 3,000,

and BTCs are accepted for pay-

ment by over 10,000 businesses

(National Taxpayer Advocate

[NTA],

2013, p. 249). Some com-

panies (such as Virgin Group,

the Sacramento Kings, and Tig-

erDirect.com) and not-for-prof-

its (such as Junior Achievement

of New York) currently allow

BTCs to be exchanged for goods

or services. When Overstock.

com started accepting BTCs in

January 2014, it “immediately

grossed $100,000 in Bitcoin

orders” (Associated Press [AP],

2014) Two Las Vegas casinos

began accepting BTCs for non-

gaming transactions in January

2014 (Stutz, 2014 ). Some online

companies even organized spe-

cial “sales” for 2013’s Black Fri-

day if buyers would pay in BTCs

(Miners, 2013). And in 2013,

BTCs were used for two merger

transactions: Blockchain bought

Zeroblock for an undisclosed

sum of BTCs, and an unnamed

buyer bought SatoshiDice for

$11.5 million in BTCs (Kharpal,

2014 ). If BTC

exchange transac-

tions are occurring

between buyers and

companies as well

as between compa-

nies, the mechanics

of accounting for

this virtual currency

must be identified.

This article

addresses how BTCs

work and discusses

six specific financial

accounting issues

(asset classification,

mining activity,

investment holdings, exchanges,

merger and acquisition [M&A]

transactions, and disclosure)

related to accounting for BTCs.

BITCOIN BASICS

For thousands of years,

“money” was based on real

things: grains, tobacco, precious

metals, and so on. With the pas-

sage of time, governments began

the process of “fractional” bank-

ing that allowed more currency

notes to be issued than could be

redeemed by the underlying hard

currency. However, neither U.S.

dollars nor other major world

currencies are now redeem-

able in gold; thereby, “[m]oney

has been cast adrift from the