Accounting for Bitcoin and other cryptocurrencies (2024)

FAQs

Accounting for Bitcoin and other cryptocurrencies? ›

Many of the most common digital assets (e.g. bitcoin, ether, solana, cardano) are accounted for as intangible assets under US GAAP (crypto intangible assets).

Cryptocurrencies as intangible assets are initially recorded at cost (i.e., the price they were bought for). Later on, their value is adjusted by subtracting amortization over time (if any) and losses due to value drops. Any increase in value after a drop is considered income.

Since crypto has no tangible value, you should account for it on the balance sheet as an intangible asset. This means that you should document crypto at its purchase price, and not as its fair market value.

The crypto asset meets the U.S. GAAP definition of an intangible asset. The holder does not have “enforceable rights to or claims on underlying goods, services, or other assets.” The asset is created or resides on “a distributed ledger based on blockchain or similar technology.” The asset is secured by cryptography.

How do FIFO, LIFO, and HIFO work? FIFO (first-in-first-out), LIFO (last-in-first-out), and HIFO (highest-in-first-out) are three accounting methods used to calculate cryptocurrency gains and losses.

Businesses that engage in cryptocurrency mining must record cryptocurrency profits in their balance sheet like other income-generating activities. This means their mining income account will be credited. Then, the newly generated digital asset will need to be debited onto their books at the asset's fair market value.

Investment in cryptocurrencies is accounted for as an indefinite-life intangible asset under both IFRS and US GAAP, as – in most instances – it does not meet the definitions of other asset classes such as cash and cash equivalents, financial instruments or inventories.

Income statement – Gains and losses on crypto assets would be recorded in net income each period, separately presented from impairments or other changes to carrying amounts of other intangible assets.

Many of the most common digital assets (e.g. bitcoin, ether, solana, cardano) are accounted for as intangible assets under US GAAP (crypto intangible assets).

Under IFRS, where an entity holds cryptocurrencies for sale in the ordinary course of business, the cryptocurrencies are considered to be inventory and should be accounted for in terms of IAS 2 Inventories. Inventories are typically measured at the lower of cost and net realisable value.

Is there an accounting standard for cryptocurrency? ›

As there are no accounting standards that specifically address cryptographic assets, questions have arisen on how to recognise, measure and disclose activities associated with the issuance of, and investment in, the various types of cryptographic assets.

However, cryptocurrency is subject to major variations in value and therefore it is non-monetary in nature. Cryptocurrencies are a form of digital money and do not have physical substance. Therefore, the most appropriate classification is as an intangible asset.

Report digital asset income

A taxpayer who disposed of any digital asset by gift may be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. If an employee was paid with digital assets, they must report the value of assets received as wages.

For each of your bitcoin wallets (and any other cryptocurrency wallet or exchange), create a separate account in the Chart of Accounts in QuickBooks. First, set up the bitcoin (BTC) currency in QuickBooks: Navigate to Settings > Currency > Add Currency, and set the current exchange rate to the USD equivalent.

Entities should track the cost (or subsequent carrying value) of units of digital assets they obtain at different times and use this value for each unit of digital assets upon derecognition when they sell or exchange digital assets for other goods or services.

The Bitcoin network records transactions on a distributed ledger (blockchain) comprising multiple nodes (computers) globally. Bitcoin was created by an anonymous individual/group under the name, Satoshi Nakamoto.

Report digital asset income on the right form

Use Form 8949, Sales and Other Dispositions of Capital Assets. Report your capital gain or loss on the transaction on Schedule D (Form 1040), Capital Gains and Losses.

Cryptocurrencies are a form of digital money and do not have physical substance. Therefore, the most appropriate classification is as an intangible asset. IAS 38 allows intangible assets to be measured at cost or revaluation.

Under IFRS, where an entity holds cryptocurrencies for sale in the ordinary course of business, the cryptocurrencies are considered to be inventory and should be accounted for in terms of IAS 2 Inventories. Inventories are typically measured at the lower of cost and net realisable value.

They list it on their Balance Sheets as a “Digital Asset,” and since it's indefinite-lived, there is no amortization. Under U.S. GAAP, companies record Impairment Losses on indefinite-lived intangible assets when their value falls, but they cannot revalue them up outside of M&A deals.