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- 1 Startups often find it very confusing to record the crypto transactions in their ledgers.
- 2 While there are no specific standards for crypto, they follow IFRS and GAAP.
- 3 Experts share some common suggestions that crypto firms can follow while recording crypto transactions.
While many countries are about to regulate crypto, no one has come up with an accounting standard for it yet. So crypto assets adhere to the regular guidelines that are applicable to fiat too. They follow the Generally Accepted Accounting Practice (GAAP) and International Financial Reporting Standards (IFRS).
Why Does Crypto Even Require Balance Sheets?
Balance Sheet is the final and the most important financial statement for any business. The others are cash flow and income statements that show business activities for a certain period. On the other hand, BS gives a holistic picture including all assets and liabilities.
Investors, analysts, and auditors use it to ascertain the financial position of the company. It includes every single entry since the commencement of the company. And as they are so important, businesses ought to create one irrespective of what they’re dealing with. Therefore, the balance sheets also need to include and show, the crypto transactions.
They do the same thing for crypto that they do for the other businesses. With an overarching overview, balance sheets provide valuable insights into the enterprise’s financial health. Also, they include some key metrics like debt-to-equity ratio and current assets vs. current liabilities. These parameters disclose the business’s position in terms of debt payment.
How Can One Include Crypto On A Balance Sheet?
This is the most obvious question that everyone asks. As the current standards don’t cover crypto, most firms face confusion with it. Still, as digital assets are considered assets, the principles support their entry in the sheet. While there aren’t any specific guidelines for them, there are a few things one can keep in mind.
Buying Crypto With Fiat Currency
Bookkeepers treat this transaction just like the stock buying/selling activities. If the business buys crypto, they are recorded just like the shares with their value and date. The assets will reflect as a debit in its own account. Moreover, since cash was used for purchasing, it reflects on the credit side of the purchase.
Selling Crypto With Fiat Currency
The entries are reversed when the company sells crypto using traditional methods. The cash makes its way into the debit and assets go into credit. And in case there’s a major difference between the sale amount of crypto and the amount paid. The capital gains will also go on the credit side.
Documenting Losses
The losses are also dealt with the same way as they are in traditional assets. Crypto is an intangible asset and its loss is duly recorded in the ledger. And even if the loss is recovered in the future, it remains unchanged in the book. The accountants record the new profits separately.
Crypto Mining Income
The crypto mining companies record all the profits they make from this activity. As per the standards, they have to record the income on the credit side. The newly-produced digital assets will find their entry into the debit side showing their market value.
Initially, it could be a little confusing for businesses to record crypto. But once they treat them like other assets, things get easier. And soon, we might get distinct standards for crypto as well.
Mr. Pratik chadhokar is an Indian Forex, Cryptocurrencies and Financial Market Advisor and analyst with a background in IT and Financial market Strategist. He specialises in market strategies and technical analysis and has spent over a year as a financial markets contributor and observer. He possesses strong technical analytical skills and is well known for his entertaining and informative analysis of the Financial markets.
