Cryptocurrency is a new frontier in finance and one that has enticed many businesses with its promise of both a new fiscal framework and the potential of very lucrative returns for early adopters. But how should crypto assets be treated when it comes to accounting? Here’s a basic guide to cryptocurrency accounting.
What is cryptocurrency?
Cryptocurrency is a form of digital currency. It’s called a cryptocurrency because it uses cryptography to record and secure its transactions. They aren’t issued by a bank but rather use a decentralised ledger system to issue new tokens and record transactions. This ledger is stored on the blockchain, a technology that makes it very difficult to hack or modify. Examples of cryptocurrencies include Bitcoin, Ethereum and Litecoin.
What is a cryptocurrency account?
A cryptocurrency account is like a digital wallet, in which cryptocurrency can be stored. Many services allow you to do this, with services like Coinbase, Kraken and Binance being the largest. They also allow you to exchange the cryptocurrency for fiat currencies like the Dollar and the Pound.
How can an accountant can help
The unique nature of these assets requires specific accountancy practices. A cryptocurrency accountant can provide businesses with clarity on how to treat cryptocurrency as an asset, what taxes need to be paid on it and other compliance issues.
Some businesses and individuals may have been thinking about investing in this space but may have cold feet due to recent events in the sector or the apparent complicated nature of investing. A cryptocurrency accountant can provide advice on how to invest in cryptocurrency on a purely practical level, although specific recommendations of investments are outside of their remit.
Whether you make losses or gains on your investments, these are key aspects of any tax report. Cryptocurrency accountants can help report your gains and losses accurately, helping you navigate a complicated tax environment and ensure compliance.
J Sweeney Accountants offer a range of accountancy services, including cryptocurrency services, to suit your business.