Cryptocurrency Accounting: Comprehensive Guide

Are you a business owner or accountant looking to understand cryptocurrency accounting under US GAAP?

Cryptocurrency is becoming increasingly popular and more widely accepted as a form of payment. As such, it’s crucial to understand how to account for these transactions accurately and follow US GAAP. This blog post will provide an overview of the accounting policies related to cryptocurrency under US GAAP.

By understanding these accounting policies, you can ensure that your financial statements are accurate and compliant with US GAAP standards. You’ll also gain insight into how to account for different types of cryptocurrencies, so you can make informed decisions about which ones are best suited for your business needs.

Read on to learn more about accounting for cryptocurrency under US GAAP!

What Is Cryptocurrency?

Cryptocurrency is a digital asset that utilizes cryptography to secure transactions, control the creation of additional units, and verify transfers. Cryptocurrency is decentralized and not issued or backed by any government or central bank. Common cryptocurrencies include Bitcoin, Ethereum, Litecoin, Ripple, etc.

What is GAAP?

GAAP is a common set of accounting principles, standards, and procedures that public companies in the United States must follow when they compile their financial statements. The Financial Accounting Standards Board (FASB) maintains GAAP. In addition, the board issues new rules as necessary to ensure that GAAP remains up-to-date.

How is GAAP Organized?

The hierarchy of GAAP improves financial reporting and consists of a framework for selecting the principles that public accountants should use. The hierarchy is as follows:

• Statements by the Financial Accounting Standards Board (FASB) and Accounting Research Bulletins and Accounting Principles Board opinions by the American Institute of Certified Public Accountants (AICPA)
• FASB Technical Bulletins and AICPA Industry Audit and Accounting Guides and Statements of Position
• AICPA Accounting Standards Executive Committee Practice Bulletins and positions of the FASB Emerging Issues Task Force (EITF)
• FASB implementation guides, AICPA Accounting Interpretations, AICPA Industry Audit, and Accounting Guides, and Statements of Position not cleared by the FASB
• Accounting practices widely accepted and followed

FASB directs accountants to find information from the top of the hierarchy first. Then, they can go to lower levels if they can’t find what they need there. The FASB’s Statement of Financial Accounting Standards No. 162 provides a detailed explanation of the hierarchy.

Where Can I Research GAAP?

FASB provides free online access to the Accounting Standards Codification, the only authoritative source for US GAAP. FASB and the AICPA also offer access to other authoritative literature that supplements the GAAP Hierarchy.

To access the Accounting Standards Codification, visit asc.fasb.org. Anyone can access the codes using a basic account. For more advanced features, you can set up a professional account. If you work at a company subject to GAAP rules, your company likely has a professional account.

ASC 350-60: Cryptocurrency Accounting

Since cryptocurrency is new, FASB is just beginning to update GAAP for proper accounting treatment. On March 23, 2023, FASB proposed new guidance to be added to ASC 350. This will be subtopic ASC 350-60: Accounting for and Disclosure of Crypto Assets.

The amendments in this proposed Update would apply to crypto assets that meet all of the following criteria:

1. Meet the definition of an intangible asset as defined in the Codification Master Glossary
2. Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets
3. Are created or reside on a distributed ledger based on blockchain technology
4. Are secured through cryptography
5. Are fungible
6. Are not created or issued by the reporting entity or its related parties.

An entity would subsequently measure crypto assets that meet those criteria at fair value with changes recognized in net income each reporting period. In addition, an entity would acknowledge transaction costs to acquire a crypto asset, such as commissions and other related transaction fees, as an expense incurred unless applicable industry-specific guidance requires that the entity capitalize those costs.

The amendments in this proposed Update also would require that an entity present (1) crypto assets measured at fair value separately from other intangible assets in the balance sheet and (2) changes in the fair value measurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement (or statement of changes in net assets for not-for-profit organizations).

Frequently Asked Questions

Q: What is the accounting treatment for cryptocurrency? 

A: For US GAAP, FASB has proposed new guidance in ASC 350-60 to address the proper accounting treatment of cryptocurrency assets. To that end, these proposed amendments would require an entity to measure crypto assets at fair value with changes recognized in net income each reporting period. The entity would acknowledge transaction costs to acquire a crypto asset as an expense as incurred unless applicable industry-specific guidance requires that the entity capitalize those costs.

Q: How can I access the official US GAAP rules for cryptocurrency? 

A: The Accounting Standards Codification is the only authoritative source of US GAAP. Anyone can access the codes at asc.fasb.org with a basic account or set up a professional account for more advanced features. The proposed amendments to address accounting for cryptocurrency are being added in subtopic ASC 350-60: Accounting for and Disclosure of Crypto Assets.

Q: Does GAAP require any specific disclosure requirements related to cryptocurrency?

A: Yes, the proposed amendments in ASC 350-60 would require that an entity present (1) crypto assets measured at fair value separately from other intangible assets in the balance sheet and (2) changes in the fair value measurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement (or statement of changes in net assets for not-for-profit organizations). Moreover, any entity that uses cryptocurrency must adhere to these disclosure requirements. Failure to do so could result in penalties from the SEC or other regulatory bodies.

Q: What is the effective date for these new accounting policies?

A: FASB has not yet officially adopted the proposed amendments, but the rules are expected to become effective for public business entities for fiscal years beginning after 2023.

Let’s Recap

The accounting treatment of cryptocurrency has always been a concern for accountants and other financial professionals. To ensure consistent and accurate reporting, the FASB has issued several documents related to crypto assets, including a newly proposed subtopic, ASC 350-60. Once FASB approves the subtopic, companies must report cryptocurrency separately on the balance sheet as an intangible asset and recorded at fair market value.

Have any questions? Are there other topics you would like us to cover? Leave a comment below and let us know! Remember to subscribe to our Newsletter to receive exclusive financial news in your inbox. Thanks for reading, and happy learning!