- Dec 21, 2023
- 7 min read

A Guide to Crypto Asset Accounting

Updated: Feb 17

In the ever-evolving landscape of cryptocurrencies, accounting practices are facing unprecedented challenges. As the crypto space continues to innovate at a rapid pace, conventional accounting standards are being established. This guide aims to illuminate the complexities of crypto asset accounting while emphasizing the importance of a principles-based approach. Exploring the nuanced differences in accounting for crypto assets under International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP), we delve into key considerations such as initial recognition, subsequent measurement, fair value assessment, tax implications, and disclosure requirements.

The Evolving Crypto Asset Accounting Landscape:

The dynamic nature of cryptocurrencies presents a unique challenge to traditional accounting standards, prompting a careful examination of existing principles to ensure accurate and transparent financial reporting.

Key Standard Setters: IASB and FASB:

At the forefront of shaping accounting standards are the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). Formulating International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP) respectively, these entities play a pivotal role in determining how businesses account for crypto assets. It's crucial to recognize that while both aim to enhance financial transparency, the application of accounting principles may vary slightly under IFRS and US GAAP, depending on the jurisdiction of the entity.

Accounting Considerations for Crypto Assets:

This guide delves into critical aspects of crypto asset accounting, including:

Initial Recognition and Subsequent Measurement:

Distinguishing the treatment of crypto assets under IFRS and US GAAP, where IFRS allows for accounting under Intangibles or Inventory, while US GAAP restricts crypto assets to Intangibles. IFRS-IAS 2 ‘Inventory’, IFRS - IAS 38 ‘Intangible Assets’, US GAAP - ASC 350 ‘Intangibles, Goodwill and other’

Fair Value Measurement:

Exploring the definition of fair value under both IFRS 13 and US GAAP ASC 820, the fair value is “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. With different exchanges quoting different prices, it is important to maintain a consistent approach with regards to pricing the source of your crypto assets where the greatest volume is being traded. Additionally, because markets never close, it is advisable to use the same time for pricing assets.

Tax Considerations: Calculating Capital Gains/Losses:

Calculating capital gains or losses by various methods, such as FIFO, WAC, LIFO, and HIFO, to determine cost basis as standard. Finance managers monitor digital asset unrealized gains/losses for informed investments and risk management. Calculating capital gains or losses is crucial for tax considerations, allowing the offset of tax liabilities with capital losses. Realized gains, determined by subtracting the acquisition cost from the fair market value at sale, are typically relevant for tax reporting. Use Form 1099-B to the IRS when a customer has earned $600 or more of cryptocurrency income. It is likely that all exchanges will be required to send Form 1099-DA starting in 2026. Form 8949 is the tax form that is used to report the sales and disposals of capital assets, including cryptocurrency.

Not every cryptocurrency transaction is subject to tax! You do not trigger a taxable event when you:

Hold cryptocurrency
Buy cryptocurrency with fiat currency and hold it
Transfer crypto from one wallet you own to another wallet you own
Use cryptocurrency as collateral for a loan

IRC Section 6050I requires that any person engaged in a trade or business that receives cash in excess of $10,000 in a single transaction or in related transactions must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business

The IRS can track Crypto transactions using Chainanalysis contractors who analyze the blockchain and crack down on tax fraud.

Accounting Methods:

In the app market use the Gilded app. This app will Sync Bitcoin, Ethereum, and cryptocurrency transactions (Income, Expenses, Fees) to QuickBooks Online and is SOC II compliant. Crypto Tax Ledger is also available to track crypto, Defi, NFT transactions, integrating with several tax reporting software manufacturers.

Otherwise or in addition, like typical banking, you can

(1) set up a Crypto-bank account as a bank asset to track crypto-value **currently QuickBooks Online only supports Bitcoin xPub via Blockpath app

(2) Intangible inventory items are setup as current assets, to track coin quantities, mapped to bank account (exchanges) like checking and wallet income (cash/coin on hand) like savings or petty cash on the balance sheet, using location distinction on transactions to specify the specific exchange/wallet and class to distinguish coin type.

(3) Create estimates, purchase orders, bills (cash, or A/P purchase, yielding/staking-collateral Defi liability) with corresponding bill payment, along with invoices (cash or A/R inventory asset credit disposition, staking/yielding-Defi lending) with corresponding invoice payments to track income, deposits, expenses, withdrawals to fiat (cash on hand wallet), transfers and exchange trades. QuickBooks Online will track the crypto-inventory COGS and value on a FIFO valuation basis on your Income Statement when coin inventory quantities move, by bill or invoice (buy/sell).

(4) Reconcile the asset crypto-bank account on the "measurement date & time" using the market capitalization rate (or lesser known FD Market Rate) to determine fair value reconciliation beginning and ending balance. After entering any fee expenses, changes in value will be recognized as: (Bank Value Gain/Loss RECON ADJ to Income Statement Crypto Gain/Loss) Note: You can use Excel Spreadsheets to track market capitalization rates beginning and ending balances on "measurement dates" and later use this information to chart changes in the market capitalization rates of your crypto, providing you with valuable data analysis. This method of accounting is transparent, provides valuable reporting insight and follows the basics of financial accounting principals.

*If the crypto platform has Excel data for your Crypto, with your balances, transactions, fees and ongoing capital gains earnings (ie..interest earned), the information can be imported to the QuickBooks Online Crypto bank account.

Item Setup:

Intangible Inventory Asset set up in Products and Services, for each Crypto-Coin would follow these rules:

Intangible Inventory (Inventory Asset=Intangible Crypto Name, Income=Sale of Crypto Income, Expenses=Cost of Goods Sold: Crypto) Purchase price and cost are required for Income Statement COGS Calculations. Use Excel Spreadsheet Sync to update most current price and cost (fair value). (For Crypto: use measurement date and time) Update frequently, or as required for reconciliation and Income Statement reporting. COGS will calculate from the Products and Services list "first in purchase cost" if a new bill with the latest cost (paid or unpaid) is not entered in the system.

Sell Transactions:

Customer/Client: Use platforms such as; Coinbase, Cashapp, Biance, FTX

When to Sell?

Enter an Invoice to include a line item for Intangible Inventory Crypto Name (Income=Sale of Crypto Income) and Category (COS) line item for additional fees. Use for Crypto inventory asset credit disposition, (staking/yielding-Defi lending)

NEXT > Receive payment to the Crypto Wallet (Cash/Coin On Hand), Crypto Bank Account, Cash, Other Balance Sheet Account or Fiat Currency.

Two ways to Request Exchange Payment for Billable (Crypto):

(1) Invoice directly from an estimate, with already marked up items you are requesting payment or exchange for. If this is the case, when the billable Crypto is a buy transaction, the field for the client is entered on the bill or expense as they appear in the bank feed, but they are NOT marked billable. When earned revenue is realized directly from the estimate/invoice, the markup is already calculated and the difference on the Income Statement is the estimated Sale of Crypto Income and associated Cost of Goods Sold: Crypto = Gross Profit/Net Income.

(2) If you are entering invoices directly from a bill or expense, marked billable and marked up to a client, the invoice will reflect on the Income Statement as Sale of Crypto Income and associated Cost of Goods Sold: Crypto, GAAP compliant, with markup as a separate income line item. You can also invoice with other bills and expenses. If time is billable, make timesheets billable so you can add them to invoices. Turn this feature, and the Markup feature on in Accounts and Settings. Consult local jurisdictions for sales or other tax requirements.

NEXT > Receive payment to the Crypto Wallet (Cash/Coin On Hand), Crypto Bank Account, Cash, Other Balance Sheet Account or Fiat Currency.

Buy Transactions:

Crypto Bills and Expenses:

Payee/Vendor: Intangible Inventory 'Crypto Name'

Buy Price: Establishes Fair Market Value on buy date of the Crypto Inventory Item

Enter fees as a expense category line item mapped to the Income Statement

Enter Crypto Inventory as the item: Intangible Inventory Crypto Name

NEXT > Pay Crypto Bills and Expenses with the Crypto Wallet (Cash/Coin On Hand), Crypto Bank Account, Cash, Other Account or Fiat Currency.

QuickBooks Online provides a multi-currency in accounts and settings under multicurrency. Currently QuickBooks Online only supports Bitcoin xPub via Blockpath app

Obtaining Clean Data for Cost Basis Calculations:

Highlighting the importance of reviewing transaction fees, gas fees and timestamping of transactions when maintaining a ledger of digital asset transactions.

Fees Imposed by centralized wallets are:

Default Time Zones for popular block explorers and centralized exchanges:

The process and data format may vary. Always refer to the platform's documentation for accurate information.

Disclosure for Crypto Assets:

On December 13, 2023, the FASB issued ASU 2023-08

Conclusion:

Given that existing standards require a principles-based approach, it is crucial to stay informed about evolving regulations and emerging best practices for accurate and transparent financial reporting. Whether you're a bookkeeper, investor, or financial professional, navigating the dynamic terrain of crypto assets accounting requires a proactive and informed approach, ensuring alignment with jurisdiction-specific guidelines. As the crypto industry continues to evolve, staying abreast of regulatory changes remains paramount for individuals and organizations to uphold the highest standards of financial reporting.