Accepting Bitcoin as a payment method... how do merchants deal with the fluctuating value?

For merchants that are now accepting Bitcoin as a payment method (Overstock.com for example):

• How do they deal with the large fluctuations in the value of the virtual currency?
• How do they file taxes or IRS obligations with a virtual currency? Is there any legislation that deals with Bitcoin and other virtual money?
• Do accountants know how to reconcile Bitcoin in the books?

When you accept Bitcoins, you have a few options. You can use services such as xe.net or ECB along with the current Bitcoin value to adjust the cost of your inventory accordingly. You may have some services "natively" in Bitcoin as well, accepting a flat rate. In the second model, exchange Bitcoin income more quickly when value is high.

To understand Bitcoin, it may be easier to think of it as buying volatile stocks. When it comes to taxes, you can simply list Bitcoins as an asset rather than a currency for one; legislation here is a bit of a grey area.

As per accounting, accounts that deal with foreign exchange may be more apt to understand dealing with Bitcoin. Many real-world currencies also fluctuate considerably.

Disclaimer:
This answer is not legal advice, consult a lawyer directly for any legal advice.