It’s Time To Rethink Accounting For Cryptocurrency

Keep up-to-date on the latest insights and updates from the GAAP Dynamics team on all things accounting and auditing. When you reach this stage, you must hand over control to the specialists so they can assist you in growing your investments while keeping your focus in your businesses growth. Of course, you’ll be able to deduct all routine and unavoidable expenditures incurred as a result of these operations.

• Soon, we will have a record of large amounts of economic activity, not only the movement of money, but also the trading in financial assets, IP, and even physical goods in this way.
• Features include the ability to connect multiple blockchains, increasing transaction processing capacity.
• However, the accounting rules for your financial statements and your reporting for tax purposes won’t align 100% of the time.
• “I can’t just invent a coin and convince you to buy one and mark the other million I have on my balance sheet to that price,” Jones said.
• Even if the asset’s value rises or breaches earlier price levels under GAAP‘s intangible asset accounting guidelines, it is difficult to reverse an impairment loss.
• When you buy cryptocurrency, make a debit to the asset’s account on the date of acquisition.

There is an argument that something digital is not tied to a physical form for value and is thus intangible. However, if there is an available market, the digital-only asset can be readily exchanged for goods and services, including U.S. dollars. We are experiencing a period of data digitization, with more digital assets being created every day. The Board also considered if there should be a difference, or measurement alternative, for private companies. The Board ultimately decided that the measurement and recognition of crypto assets should remain the same regardless of if the reporting entity is a private company or a public business entity.

How Should CMAs Handle Crypto in Treasury Planning?

On the financial statements, the related accounting policies must be addressed, as well as the impact on various risks and future financial results. FASB discussed during a meeting Wednesday how entities that hold crypto assets should measure those assets. The board decided to require an entity to measure crypto assets at fair value, using the guidance in Topic 820, “Fair Value Measurement,” according to a summary of tentative board decisions posted on FASB’s website. Cryptocurrency is a new type of payment method that is distinctly different from fiat currencies, such as the U.S. dollar.

Before diving in, I want to note that this is not a bullish or bearish article about the prices of various cryptocurrencies. Overwhelmingly, companies are making modest moves to acquire, and CMAs in charge of treasury planning should make every effort to be educated about the current state and possible future of crypto. “I can’t just invent a coin and convince you to buy one and mark the other million I have on my balance sheet to that price,” Jones said. The Board will consider presentation, disclosure, and transition at a future meeting. The Board will also consider presentation and disclosure, as well as transition, at a future meeting. You should record your cryptocurrency trading activities similarly to how you would record stock trading.

Excel Examples with Crypto as an “Intangible Asset”

In short, this will be a major new driver for crypto adoption,” Pat White, CEO and co-founder of Bitwave, said in an emailed statement. When it comes to Generally Accepted Accounting Principles there are no hard and fast rules around crypto assets. These assets are classified as intangible assets, but certain central bank digital currencies and some stablecoins won’t be accounted for that way. In both cases, companies would initially recognize cryptocurrencies cryptocurrency accounting on the balance sheet at their cost basis. There’s no need to amortize them as an indefinite-lived intangible asset, but rather a loss must be recognized should the asset ever become impaired. The term cryptocurrency is a bit of a misnomer for accounting purposes. Virtual currencies aren’t legal tender—unless you live in El Salvador—and most governments haven’t confirmed or clarified how digital assets will be treated from a regulatory perspective.

No wonder public corporations are hesitant to touch bitcoin or digital assets. This issue continues to persist, but a possible key shift in accounting treatment may be in process subject to FASB vote. No part of the US accounting rulebook specifically spells out rules for cryptocurrency like Bitcoin and Ether. The American Institute of CPAs filled the gap in 2019 with guidance saying businesses that aren’t investment companies should account for their crypto stashes as intangible assets. This means companies record them at historical cost, watch out for signs of impairment, and mark down their holdings if the value declines.

Other Resources

Basically, they are long strings of computer code that have a cash value, and completely bypass traditional banks through crypto transactions. Theyare very controversialbecause they are unregulated by the securities and exchange commission and banks, governments and law enforcement agencies have not figured out what to do about them. The intention behind it was as a digital currency that would appreciate in value over time due to increasing scarcity and expected increases in the cost to mine or procure new bitcoins, and it was not controlled by any government. This lack of governmental ownership and accountability violates the definition of a domestic or foreign currency. However, bitcoin can be used to purchase goods and services, and the accounting treatment relies on the barter system approach to track economic gains and losses. Initial practices are following standards for intangible asset classification, but it’s important that CMAs keep an eye on accounting for cryptocurrency, as it’s a fast-moving arena where things are subject to change.

• Sign up for The Node, our daily newsletter bringing you the biggest crypto news and ideas.
• Digital assets are not treated as cash; therefore, if you exchange it for cash or deposit it in your bank account, the full amount is treated as income on your tax return.
• Cryptocurrency is a novel concept, and investment news and other coverage can swing public perception and affect prices.
• Cryptocurrency is secured by a digital ledger, which uses cryptography to make sure that the crypto, as it’s sometimes called, has been legitimately bought or used in a transaction.
• They receive the same tax treatment as similar capital gains and losses, with tax liabilities in a given year applied to the proceeds from a sale.
• Polkadot is an example of the way new coins are founded to solve shortcomings in the previous generations of cryptocurrencies.