0. This introduces the accounting rules for Bitcoin public companies.
Such accounting rules are proper and necessary, because :
- Bitcoin is fundamentally and structurally different from all fiat currency of all sorts and types, either currently or historically in existence.
- The currently accepted patchwork of contradictory, whimsical and occasionally nonsensical fiat accounting standards (GAAP, IFRS, etc) are either useless or overly complicated for most BTC applications.
- There exists no authority capable of Bitcoin taxation. Consequently, all the subterfuge and nonsense induced in fiat accounting by this scourge upon humanity needs not be replicated in Bitcoin.i
This accounting scheme is intended to be :
- Clear and concise. Reading the statements of the average public company should not require the interested party more than one hour, provided the interested party is literate.
- Simple and flexible. Preparing the statements of the average public company for publication should not require the interested party more than one workday, provided the interested party is qualified.
- Sensible and straightforward. The literate person of 100 IQ should be able to learn the entire scheme within a week, and be ready to correctly apply it from there on.
- Unambiguous. Absolutely any situation that may be encountered in practice is to be described exactly one way in the accounting system. The possibility available of reducing to the absurd any alternative notation.
Needless to say that none of these constraints are currently met by any sort of "generally accepted" set of accounting principles or regulations.
I. The accounting system.
1. The accounting period may be either one week or one month, at the option of the corporation. Purely financial ventures may opt for weekly reporting, but in the case of corporations with any operational activity at all the standard is one month.
2. All statements are to include the statement of incoming and outgoing BTC during the period, listing at the minimum the sum incoming or outgoing and a brief description. To simplify auditing it is recommended that corporations use one single Bitcoin address for all their incoming, and that they resend the entirety of their BTC to that address at the end of each period.
3. All statements are to include a statement of corporate accounts listing start, net change and end positions for each of them, as well as totals. The total liabilities must match total assets on the book.
The assets account plan consists of three accounts :
- Cash, including BTC balances held and cash equivalents, defined as any instruments that are normally expected to be exchangeable for cash within 24 hours.ii
- Tangibles, including any and all assets that could reasonably be expected to be exchangeable for BTC, even if at a loss.
- Intangibles and goodwill, including any and all expenditures that could not be reasonably expected to be exchangeable for BTC on their own.
The liabilities account plan consists of two accounts :
- Notes. If the company borrows from a third party in any shape or form, the entire value (principal and interest) is included.iii
- Shareholders' equity, defined as the net difference between the total assets and the sum of other liabilities.
Accounts may be omitted if nil.iv
4. All statements are to include a statement of the total authorised shares outstanding and account for issuance and treasury holdings. All statements are to report a par value per share both in the "all accounts" version and in the "cash + tangibles" version.
5. All statements are to include a forward looking statement from the management, with regards to next term revenue.
6. All statements are to include a table of outstanding stock warrants, if any, composed of an itemised list of each warrant with its share count, BTC value and par. The table will also include a totalisation row, with the average par.
II. Using the accounting system for reporting.
1. During the entire month you keep a runner of all your expenditures and all your income. You don't need to sum or sort anything, you just publish this runner at the end of the month.
2. You copy your previous interval end account positions as your start positions for the current interval. You check your BTC and enter it as your end position. You go through the incoming list and add all incoming BTC to the cash net change position. You go through the outgoing list and substract all outgoing BTC from the cash net change position. You check that the start + change = end. If this equality is not satisfied you hunt for the missing element in your list until you find it. If you can't find it you report this. In no case do you cook the books to suit.
3. You go through the outgoing list and sort the expenses into tangible and intangible. Every time you buy something of definite value or which can be negotiated for a price you have bought a tangible in this context. Every time you pay for something which has no definite value outside of the value you assign itv you have bought an intangible.
4. You go through the list of tangibles and assign an amortisationvi horizon and an amortisation plan for them. The standard amortisation flows in 12 equal parts during the course of one year. If you intend to use a different model you make a statement of this, detailing your reasoning.
5. You apply any amortisation to your already existing tangibles, according to the plan you declared at the time they were introduced in the accounts. Your start tangibles plus your current tangible purchases minus amortisations is your end tangibles position. You list the net change for convenience. Your start intangibles plus your current intangible purchases plus amortisations is your end intangibles position. You list the net change for convenience.vii
6. You list the total shares outstanding, conveniently detailing how many were issued and when, how many were bought by the company (treasury shares) and when. You calculate your cash + tangibles and your all accounts positions and report each as a per share value.
7. You prepare as best you can, drawing on all your knowledge of your business and your field, a forward looking statement of revenue for the next period. Should such statements prove wrong in retrospect you've committed no crime, it happens. If it happens a lot it does mean you suck as a manager, but it does not mean you're dishonest. There's a huge difference between these two, as suckage you can fix but dishonesty you can not fix.
8. You publish your stock warrants table, if you have issued such things. Just to be on the safe side you make any mentions of anything and everything you in your conscience consider might still be necessary for an unrelated third party to correctly and fully evaluate the state of your corporation. To keep balance consider the mutually exclusive interests of brevity and completeness : having left the water running is a small thing when compared to the size of the house, and after all water runs all the time in any house. Nevertheless, if the stopper is also in, the TV tuned on Creek Channel and your roommate tired you won't omit mentioning the water as you leave for work.
III. Using the accounting system for judging corporations.
1. Are the accounts actually balanced ? Do the numbers add up ? If not, perhaps the corporation would be better served sending its officers back to school for equivalence degrees. Or perhaps something was just overlooked and you can help.
2. Do the expenses make sense ? Are the prices paid reasonable ? Does the revenue make sense ?
3. What is the quality of the tangibles account ? Does it include a lot of crude oil in storage or is it mostly costume jewelry ? What is the quality of the intangibles account ? Does it mostly consist of judicious expenditures or is it principally made up of blown deals such as investments gone bad ?
4. What is the evolution of this business over time ? What can we glean about the officers from it ?
It is ultimately your job to put either a discount or a premium on the accounts of the company and compute your very own per share value. Based on this you may then buy public companies that are under your evaluation and sell those which are over it, calling yourself an investor for cause, and not merely on the grounds that you liked the sound of the words.
This accounting system is optional for MPEx listed companies all through 2013. It will become mandatory in 2014, either in its present form or as restated prior to January 1st 2014.
This accounting system may be referred to as MPEx-AN0-v1 or AN0 for short.
This accounting system is not intended for zero asset corporations, which distribute their net profit each month to shareholders. These will continue on the S.MPOE model.
You can review an example of this system at work here.———
- The best example is perhaps the notion of amortisation, which has been completely redefined. [↩]
- Note that holding large volumes of illiquid shares does not qualify as cash - only the portion of the position inferior to a tenth of the average daily volume of the symbol during the previous month may be accounted as cash, and only at the average price during the previous month. Instruments not listed on an approved exchange may not be counted as cash at all. [↩]
- If company A borrows 100 BTC at 5% compounding for one year the sum included will be 179.58563260, ie 100×1.05^12. If company A borrows with interest but without term the sum included will be quoted as "infinity", and the accounts will balance with 0 shareholder equity. [↩]
- Note that an officer diminishing the corporate cash position to pay "debts" not listed as Notes is comitting a serious offense. [↩]
- Such as for instance advertising, as someone can't very well buy for their own use the advertising you've done for your own company ; such as for instance an electricity bill, as someone can't very well buy from you the electricity you've already used. This does not mean these expenses are a waste or that the items acquired are useless - it just means that the only way to extract their value is to buy your whole company, as they can't be traded on their own account. [↩]
- Please be aware that the BTC notion of amortisation has absolutely nothing in common with the fiat version. For a discussion of this point please see this log. [↩]
- Note that financial instruments gone sour (exchange disappeared, asset delisted, issuer dissapeared etc) will have to be moved to the intangibles account. You can't carry on your tangibles account financial instruments that aren't listed on an approved exchange, no matter how good your personal relation with the issuer or your estimation of his industry. [↩]