Crypto Subledger: The Bridge between Blockchain Activity and Accounting Softwares

1. Introduction

Wallet and exchange data can be a bit difficult to be interpreted by finance professionals, as they typically show only transaction hashes and wallet addresses, making it hard to determine the nature of the transaction and also the sender and receiver, unlike traditional bank statements that indicate the recipients name and, often, the nature of the transaction. In addition to that, there is a need to convert these transactions into accounting-ready entries before migrating them to accounting softwares. This has led to the adoption of crypto subledgers to be a part of the accounting workflow involving crypto transactions.

2. What Crypto Subledgers Do & Core Features

Crypto subledgers translate crypto transactions to accounting-ready entries, acting as a bridge between crypto reconciliation software and accounting software, but some can function standalone for simpler transaction profiles, without the need for a separate crypto reconciliation software. Core functions are:

1. Data Collection: Even without the use of crypto reconciliation software, most crypto subledgers are able to import crypto transactions from wallets and exchanges.
2. Transactions Categorization & Auto-Tagging: Crypto subledgers automatically suggests categories to transactions once they are imported, which can save users time and can reduce manual effort, though classifications still require review for accuracy, especially for complex transactions.
3. Computation of Cost Basis and Gain/Loss: Some crypto subledgers can compute cost basis and gains/losses based on available transaction data and selected accounting methods, though accuracy depends on data completeness and correct transaction classification.
4. Creation of Accounting Software-Ready Entries: Journal entries (often summarized by period and asset) are generated from categorized transactions of crypto recon software or from imported crypto transactions by the crypto subledger, making it ready to be transferred to the accounting software such as Xero or Quickbooks.
5. Integration to Accounting Software: Through API integration, crypto subledgers sync entries to accounting softwares, without the need for manual exporting of entries from the crypto subledger and importing them to the accounting software.

3. How Crypto Subledgers Differ in Accounting Workflow Set Up

Crypto subledgers can be used in two ways - as a stand alone subledger or with the use of a crypto reconciliation software.

A. As a stand alone Crypto Subledger

Usual workflow: Wallets/Exchanges → Crypto Subledger → Accounting Software (e.g. Quickbooks, Xero, Netsuite, Sage)

The subledger:

• Imports the data from wallets/exchanges
• Categorizes the crypto transactions
• Computes cost basis & gains/losses
• Creates the journal entries of these crypto transactions
• Migrates these entries to the accounting software

In this case, as the subledger can perform the core reconciliation functions, users and finance individuals can opt not to use a separate crypto reconciliation software.

B. With the use of a separate Crypto Reconciliation Software

Usual workflow: Wallets/Exchanges → Crypto Reconciliation Software → Crypto Subledger → Accounting Software (e.g. Quickbooks, Xero, Netsuite, Sage)

The subledger:

• Imports the categorized transactions data from the crypto reconciliation software
• Creates the journal entries of these crypto transactions
• Migrates these entries to the accounting software

In this workflow, the crypto subledger acts as the operational system of record for crypto activity, with the accounting software remaining the official general ledger.

4. Conclusion

Crypto subledgers have become an important part of modern crypto accounting, helping financial individuals and teams manage the complexity of blockchain activity within accounting processes. Whether a crypto subledger is used standalone or together with an existing crypto reconciliation software depends on factors such as transaction volume, system complexity and reporting needs. Understanding the workflow differences allows finance teams to choose the appropriate crypto subledger that can support accurate reporting.