Cryptocurrencies like Bitcoin and Ethereum have become popular alternative investments in recent years. As a result, many businesses now hold assets on their balance sheets. However, accounting for cryptocurrencies can be challenging due to their volatility and differences from traditional assets. This article provides guidance on properly recording on your company’s balance sheet.
Understand Cryptocurrency Asset Classification
Cryptocurrencies are considered intangible assets from an accounting perspective. More specifically, major accounting standard-setters like the Financial Accounting Standards Board (FASB) currently classify as indefinite-lived intangible assets. This classification means they are recorded at cost unless their value becomes impaired.
Impairment Issues
A impairment exists when the asset’s fair market value drops below its carrying cost. Impairment loss gets recorded as an expense on the income statement. The balance sheet value is reduced to match the current lower fair market value.
Follow Initial Measurement and Reporting Steps
When your business first acquires cryptocurrency, proper measurement and reporting of the assets must occur :
Record at Fair Market Value
Initially record the at its purchase date fair market value on the balance sheet. Fair market value equals the cryptocurrency price you would receive in an orderly market transaction.
Disclose Fair Value Changes
Report fair value fluctuations for speculative assets held over time on the income statement. These fair value adjustments do not apply to like Bitcoin held for operational purposes.
Properly accounting for takes careful consideration of valuation and classification issues . Following the guidelines outlined above helps ensure accurate reporting on the balance sheet. Maintaining updated records is essential given the extreme price swings that can occur Crypto.
what is crypto currency
Cryptocurrencies are becoming increasingly popular, and more and more companies are holding them as assets. However, there is some confusion about how to account for cryptocurrencies on a balance sheet .
In this post, we will break down the different ways that cryptocurrencies can be classified on a balance sheet, and we will explain how to account for them under Generally Accepted Accounting Principles (GAAP).
What is a Balance Sheet?
A balance sheet is a financial statement that shows a company’s assets, liabilities, and equity at a specific point in time. Assets are things that a company owns, liabilities are things that a company owes, and equity is the difference between assets and liabilities.
How to Classify Cryptocurrencies on a Balance Sheet
There are two main ways that cryptocurrencies can be classified on a balance sheet: as assets or as intangible assets.
- Assets
An asset is something that a company owns or controls and that is expected to provide future economic benefits. Cryptocurrencies can be considered assets if they are held for investment or used in a company’s operations .
If cryptocurrencies are held for investment, they should be reported at fair value on the balance sheet. Fair value is the current market value of the cryptocurrency. Changes in fair value are recorded as unrealized gains or losses.
If are used in a company’s operations, they should be treated like any other asset, and their value should be recorded based on historical cost or fair value, depending on the accounting method chosen.
- Intangible Assets
An intangible asset is a non-physical asset, like a goodwill, patent or trademark. Cryptocurrencies can be considered intangible assets if they don’t have any direct use in a company’s operations and are not held for investment purposes.
If are classified as intangible assets, they would be reported on the balance sheet at cost, less any accumulated amortization. Amortization is the process of spreading the cost of an intangible asset over its useful life.
How to Account for Cryptocurrencies Under GAAP
GAAP is a set of accounting standards that companies are required to follow in the United States. Under GAAP, must be classified as either assets or intangible assets, and they must be accounted for in accordance with the specific rules for each type of asset.
If you are unsure how to account for on your balance sheet, it is important to consult with a knowledgeable accountant.
Stablecoins
Stablecoins are that are designed to maintain a stable value relative to another asset, like the US dollar. Because of their stability, stablecoins should be considered cash equivalents and reported as such on the balance sheet.
A cash equivalent is a short-term, highly liquid investment that is readily convertible into cash. Stablecoins meet all of these criteria, and therefore should be classified as cash equivalents on the balance .
Conclusion
When accounting for cryptocurrencies on your balance sheet, you should consider whether they are assets or intangible assets, and whether they are being held for investment or used in your company’s operations. And don’t forget to treat Stablecoins as cash!
Looking for help with your accounting? reach out to us at OnChain Accounting
