Basic Crypto Accounting Guide for Businesses
Recently we wrote a blog post on how businesses can start accepting cryptocurrencies, in case you missed it you can read up on it here. As the next step, most of you are wanting to know how to handle the accounting side for businesses once you start accepting and dealing with crypto. Crypto accounting for businesses can be a complex and confusing topic, but it is important for businesses to understand the basics in order to properly account for their crypto assets and transactions and remain compliant. In this article, we will cover some of the key considerations for businesses when it comes to accounting for crypto.
What is Cryptocurrency Accounting?
Cryptocurrency accounting refers to the process of tracking, classifying, and reporting on the financial transactions of a business that involve cryptocurrencies. This can include both revenues and expenses that are denominated in cryptocurrencies, as well as transactions that involve the exchange of cryptocurrencies for fiat currencies or other assets.
Cryptocurrency accounting is similar to traditional accounting in many ways, but it also has some unique characteristics that make it distinct. For example, cryptocurrencies are typically decentralised and not issued or controlled by any central authority, which means that they are not subject to the same regulatory oversight as fiat (traditional) currencies. This can make it more difficult to track and report on cryptocurrency transactions, and it may also require businesses to adopt different accounting practices in order to accurately reflect their financial position.
Key Considerations for Cryptocurrency Accounting
First, it’s important to understand the different types of crypto assets that a business may hold. These can include currencies like Bitcoin and Ethereum, as well as tokens that represent ownership in a particular project or asset. The accounting treatment of these assets may differ depending on their nature and how they are used by the business.
Valuation: One key consideration for businesses is how to value their crypto assets. Unlike traditional currencies, the value of crypto assets can fluctuate significantly over time, making it difficult to determine their value for accounting purposes. The most common approach is to use the fair market value of the assets at the time of the transaction. This can be determined using a variety of methods, including market price quotes from exchanges or other reliable sources.
Tracking: Another important aspect of crypto accounting for businesses is tracking and reporting on crypto transactions. This includes recording all purchases and sales of crypto assets, as well as any other transactions such as exchanging one crypto asset for another. Businesses should also be aware of any tax implications of these transactions, as they may be subject to capital gains tax or other taxes depending on the nature of the transaction and the jurisdiction in which the business operates.
Classification: It is important for businesses to accurately classify their cryptocurrency transactions in order to reflect their financial position accurately. This may require businesses to adopt different accounting treatments depending on the nature of the transaction and the specific cryptocurrency involved. For example, a business may need to treat a cryptocurrency purchase as an asset if it is being held for investment purposes, or as inventory if it is being held for resale. Sales revenue which comes in crypto should be listed in the business’ general ledger asset section with its real market value in the respective fiat currency that you are using for your business, i.e. USD.
Taxation: Cryptocurrency transactions may be subject to different tax treatments depending on the jurisdiction and the specific circumstances of the transaction. Businesses should be aware of the tax implications of their cryptocurrency activities in their respective countries and ensure that they are properly reporting and paying taxes on their cryptocurrency income and gains.
In addition to these basic considerations, there are a number of other factors that businesses should keep in mind when it comes to crypto accounting. These can include accounting for forks and airdrops, handling transactions involving stablecoins, and dealing with the accounting treatment of crypto assets that are used to pay employees or vendors.
It is also important for businesses to properly secure their crypto assets. This includes keeping track of private keys and ensuring that they are stored safely and securely. Cybersecurity is a major concern in the world of crypto, and businesses should take steps to protect themselves from hacks and other security breaches.
Best Practices for Cryptocurrency Accounting
There are a number of best practices that businesses can follow to help them manage their cryptocurrency accounting effectively. Some of the most important ones include:
Keep detailed records: It is essential for businesses to maintain accurate and detailed records of all their cryptocurrency transactions. This can include not only the transaction itself, but also any related documentation, such as invoices, receipts, and contracts. This can help businesses to accurately track their cryptocurrency holdings and ensure that they are in compliance with relevant laws and regulations.
Use a reputable exchange: Businesses should be careful where they buy and sell cryptocurrencies, and should only use reputable exchanges that are known for their security and reliability. This can help to reduce the risk of fraud or hacking, and can also make it easier to track and report on transactions.
Use a reliable software solution: There are a number of software solutions available that can help businesses to manage their cryptocurrency accounting more effectively. These can include specialised cryptocurrency accounting software such as Cryptio and Accointing, as well as more general accounting software that has been modified to handle cryptocurrency transactions. Businesses should carefully research their options and choose a solution that meets their needs and budget.
Seek professional advice: Cryptocurrency accounting can be complex and it is usually a good idea to engage professionals who specialise in this area to help you get started.
Overall, crypto accounting can be a complex and rapidly evolving area, and it is important for businesses to stay up to date on the latest developments and best practices. However, once you understand the key points and have the proper procedures set up it should become standard practice. This will in turn allow your business to take advantage of the convenience, security, and portability of crypto assets for your customers, vendor payments, smart contracts, decentralised applications, and more. We at Paywong enable businesses to take that first step to enable your business to accept cryptocurrencies as a mode of payment from your customers seamlessly, hassle-less and efficiently both in terms of cost and time.
With Paywong, anyone can accept crypto payments, including stablecoins, from anywhere in the world with low transaction fees, with or without a website. The startup is also working with a third-party off-ramp solution to allow its users to convert crypto to fiat in real-time. Paywong is a non-custodial crypto payment gateway which provides merchant services for businesses that cater to all kinds of customers. In addition, Paywong is also useful for individuals who are working as freelancers and want to get paid for their services in crypto via Paywong’s crypto invoicing service.
Paywong has launched a payment gateway with an intuitive dashboard for managing funds, e-commerce integrations, and an invoicing system that generates a payment link that anyone can share. Book a demo to learn more, and you’ll be accepting cryptocurrency as payment from your customers in no time.
For more details and updates, check out the official website as well as Twitter, Linkedin, Facebook, Instagram, and Telegram portals.
About The Company
Paywong is a product of Walawong Solutions Pte Ltd — a Web3 startup based in Singapore. We are on a mission to simplify crypto payments for businesses by leveraging the power of blockchain technology.