In order to have a better comprehension of the term bookkeeping for cryptocurrency, it is essential to understand the term cryptocurrency. Cryptocurrency is a type of cyber money that works on a separate ledger system dependent on a system of unified nodes. The cyber money is protected through specific codes and runs on a distributed ledger technology known as blockchain.
On the other hand, crypto bookkeeping is the procedure of monitoring the financial transactions of cryptocurrency-related to both shareholders and the company. The company can monitor its financial position, tax payments, earnings reports, and net income. It also allows the management to save time and focus on improving customer service.
Purpose of Cryptocurrency Bookkeeping
Cryptocurrency Bookkeeping is an important procedure for estimating a company’s performance by calculating transactions and evaluating its efficiency. Since there is no standard rule set for cryptocurrency accounting, it becomes difficult for accountants to keep a balance sheet, and the Accounting method for cryptocurrency is different for each case.
Categories of Cryptocurrency Bookkeeping
There are three main categories of crypto bookkeeping: intangible Assets, Inventory, and Cash Equivalents. In the upcoming lines, we will briefly discuss each category.
Intangible Assets
Cryptocurrency is mostly considered a tangible asset, especially when used for investment. Just like other intangible assets, its value comes from its advantages. Often, the value of intangible assets is set at the price they were purchased, but later on, their value is set at their initial price, or the market determines the price.
Inventory
Cryptocurrency is labeled as inventory for trading and mining businesses. Just like other inventories, these assets are listed at the lowest cost or their market value. Finding the proper book value of cryptocurrency is difficult since it requires details of mining costs and fluctuations in the marketplace.
Cash Equivalents
Cryptocurrency is also known as cash equivalent if it is a liquid investment that can be easily converted into cash without any considerable change in its market value. Cash equivalents are mostly related to pegged coins or other groups of cryptocurrencies whose market price is connected to another stable asset.
Key Steps for Crypto Bookkeeping
A company, whether small or large, must follow three main steps for crypto bookkeeping.
Keeping Track of Costs
The primary step in crypto bookkeeping is to keep track of crypto transactions, such as buying and selling, transferring, or any cryptocurrency transactions. These transactions must be recorded on a balance sheet with the time and date, fees, and worth of each purchase.
Estimating Profits and Losses
After recording all the costs and transactions, the second step is to estimate profits and losses. In this estimation process, the cost basis of the cryptocurrency and sales price are determined. The income statement shows the difference in cost at the time of purchase and at the time of sale.
For instance, if the value of 1 Bitcoin were $50,000 when purchased and $51,000 when you sold it, then your gain would be $1,000.
Compose a P/L Report
At the end of crypto bookkeeping, a comprehensive Profits & Loss (P/L) report is made and presented to the tax office. At the time of selling cryptocurrency, the payment of tax mostly depends on the time you keep a hold of it before putting it up for sale. The shorter the time, the higher the tax rate, and vice versa.
Importance of Cryptocurrency Accounting Software
For businesses that are doing transactions in cryptocurrency, they must have crypto bookkeeping. The main reasons are
Tax Registration
Crypto bookkeeping is important for businesses to comply with tax registration and compliance. In most countries, it is a common practice to pay taxes on crypto transactions and their profits, and non-compliance can result in heavy fines and penalties.
Income Statement
Businesses must submit their yearly income statement to the administration, which is possible with the help of crypto Accounting Software. This report helps investors make better investment decisions, and regulators ensure compliance with currency regulations.
Working Competency
The cryptocurrency process is complex and time-consuming, but proper cryptocurrency accounting software can simplify it. This software helps the company automatically collect data, which helps them manage their transactions, increase their work competency, and save time.
Crisis Management
The value of cryptocurrency fluctuates quickly. Hence, companies need to supervise the risk of fluctuations while conducting transactions in cryptocurrencies. Crypto accounting software allows companies to keep records of their crypto assets, profits, and losses, spot potential risks, and handle them.
The role of bookkeeping accountants is really important, as they can guide you on how to deal with complex challenges in this market. They are skilled in accounting, tax policies, auditing, and reporting related to the cryptocurrency market.
Cost of Crypto Bookkeeping Accountant
The charges of a CPA range from $37 to $400 per hour, according to their expertise. The value of cryptocurrency fluctuates, which makes it a complex process to identify its tax regulations. Therefore, it is necessary to work with an expert accountant who understands the market features in detail.
Top 3 Cryptocurrency Bookkeeping Software
Cryptocurrency involves a large number of financial transactions on various forums. Manually recording the data can lead to inconvenience and errors. Crypto accounting software makes the bookkeeping process efficient and accurate. This type of software automatically records crypto transactions, minimizing errors and saving accountants time.
Following are the top three cryptocurrency accounting software
Cryptio
Cryptio is cryptocurrency bookkeeping software that automates transaction data using customized regulations, including capitalizing profits and salary costs. It combines a wide variety of wallets, trades, and blockchain transactions. Cryptio uses API software for bookkeeping and creating custom tax reports.
Key Features
- Assessment system which complies with IFRS and GAAP
- Immediate and automatic recovery of transaction history
- Synchronize with your ERP system and fiat accounting
Charges
The charges of Cryptio software are $499 per month.
Blockpit
Blockpit has a tax loss harvesting mechanism, which helps the company capitalize on tax profits with cryptocurrencies and Non-fungible Tokens (NFT). This software provides a Daily Balance Report that shows the status of your exchange balance and wallet. They also provide a market sentiment analysis, which uses AI to understand traders’ sentiments in the cryptocurrency market.
Key Features
- Automated tax calculation
- Automated classification of transactions
- Tracking financial assets
Charges
The charges for Blockpit software are $49 per month.
Bitwave
Bitwave has a strong approach to dealing with digital inventory, which includes complicated tax management, automated market valuation, cryptocurrency billing, and other finances. This cryptocurrency accounting software provides a shared wallet, which enables companies to manage their cryptocurrencies without fear.
Key Features
- Smooth data integration
- Tracking of transactions
- Streamline analysis of finances
Charges
On request, the details of charges are given after a presentation.
Summary
Bookkeeping for cryptocurrency is a complicated process that necessitates expertise and special software. With the increase in the use of digital money for transactions, crypto bookkeeping is also progressing.
Cryptocurrency accounting software is here to make things straightforward. With the help of automated crypto bookkeeping, you can track your digital currency transactions, their market value, and tax implications.
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