Accounting for bitcoin (cryptocurrency)

No accounting standard currently exists to explain how cryptocurrency should be accounted for, accountants have no alternative but to refer to existing accounting standards.

What is cryptocurrency?

Cryptocurrency is an intangible digital token that is recorded using a distributed ledger infrastructure, often referred to as a blockchain.

These tokens provide various rights of use. For example, cryptocurrency is designed as a medium of exchange. Other digital tokens provide rights to the use other assets or services, or can represent ownership interests.

These tokens are owned by an entity that owns the key that lets it create a new entry in the ledger. Access to the ledger allows the re-assignment of the ownership of the token. These tokens are not stored on an entity’s IT system as the entity only stores the keys to the Blockchain (as opposed to the token itself).

They represent specific amounts of digital resources which the entity has the right to control, and whose control can be reassigned to third parties

What accounting standards

Cash & cash equivalents

Bitcoin is too volatile! Cash is readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Financial assets

It does not represent cash, an equity interest in an entity, or a contract establishing a right or obligation to deliver or receive cash or another financial instrument.

Moreover, bitcoins do not provide the holders with a residual interest in the assets of an entity after deducting all its liabilities.

Property, Plant & Equipment

Bitcoin is not a tangible asset so it does not fall into the scope of PPE.

Inventory

Inventory accounting may be appropriate if an entity holds bitcoins for sale in the ordinary course of business.

However if an entity holds bitcoins for investment purposes over a period of time, inventory accounting is not appropriate.

Intangible assets

It appears to meet the definition of an intangible asset which define as an identifiable non-monetary asset without physical substance.

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AccountKtp KtpNovember 29, 2021accounting for bitcoins, crypotcurrency

Accounting for bitcoin (cryptocurrency)

Accounting for bitcoin (cryptocurrency)

What is cryptocurrency?

What accounting standards

Cash & cash equivalents

Financial assets

Property, Plant & Equipment

Inventory

Intangible assets

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