Ensuring Your Crypto Investment Portfolio Accounting is GAAP Compliant 

The rise of cryptocurrency has been one of the most fascinating phenomena of recent years. With Bitcoin, Ethereum, and other digital assets reaching record highs in value, it’s no surprise that more and more businesses are looking to get involved in the space. However, for those in the finance world, there’s one key question that needs to be answered before dipping a toe into the crypto pool: is cryptocurrency accounting GAAP compliant?

What is GAAP?

For those unfamiliar with the term, GAAP stands for Generally Accepted Accounting Principles. GAAP is a set of guidelines and standards that businesses must adhere to when preparing their financial statements. In the United States, GAAP is overseen by the Financial Accounting Standards Board (FASB). 

The application of GAAP ensures that financial statements are consistent and reliable, providing investors and other interested parties with a clear picture of a company’s financial health. Given the relatively new nature of cryptocurrency, there has been some confusion as to whether or not digital assets are subject to GAAP. 

Are Cryptocurrencies Subject to GAAP? 

The short answer is yes, cryptocurrencies are subject to GAAP. In 2014, the FASB issued a statement clarifying that cryptocurrency should be considered an intangible asset. As such, it should be accounted for in accordance with existing GAAP standards for intangible assets. 

This means that businesses must take into account the costs associated with acquiring cryptocurrencies, such as transaction fees. These costs must be deducted from the total value of the digital asset when it is first acquired. For businesses that hold cryptocurrency as inventory, the rules are slightly different; blockchain-based inventory must be stated at its fair market value on balance sheets. 

What about ICOs? 

An ICO, or initial coin offering, is a method of fundraising that has become increasingly popular in recent years. When a company conducts an ICO, it issues digital tokens in exchange for investment capital. Given that ICOs typically involve the sale of intangible assets, they too must be accounted for in accordance with GAAP standards. 

Specifically, businesses must recognize revenue from ICOs when outside investors purchase tokens from them. This revenue should be reported net of any related expenses, such as marketing costs incurred to promote the ICO. It’s important to note that businesses can only recognize revenue from ICOs once they have delivered on their promises to investors; if a company conducting an ICO fails to meet its commitments, it will not be able to recognize any revenue from the sale of tokens. 

Accounting for Crypto

Cryptocurrency accounting can be complex and confusing; however, it’s important for businesses to ensure that their accounting practices are compliant with GAAP standards. Failure to do so could result in serious penalties from both regulators and investors alike. Thankfully, there are systems available, like NetSuite for Crypto to help businesses navigate this complicated landscape. With careful planning and execution, any business can ensure that its crypto accounting practices are up to scratch.

In Conclusion

When it comes to cryptocurrency accounting, businesses must ensure that their practices are compliant with Generally Accepted Accounting Principles (GAAP). Cryptocurrencies are considered intangible assets and must be accounted for accordingly. This means taking into account acquisition costs and deducing them from the total value of the asset when first acquired. For businesses that hold cryptocurrency as inventory, blockchain-based inventory must be stated at its fair market value on balance sheets. Having a finance system in place can help streamline your portfolio management and help better manage GAAP compliance.

About Zanovoy

Zanovoy is a leading US-based consulting firm specializing in providing implementation and managed services for digital asset companies including Crypto and NFT investors, traders, miners, creators and minters. We help businesses to better understand their options when it comes to choosing systems that help management and grow your investment portfolio. Our services include but are not limited to:

  • Systems analysis and selection
  • System Implementation
  • Process and controls design
  • Policy and procedure development
  • Project management
  • Systems integration
  • Ongoing support and maintenance

If you are interested in learning more about how we can help you with your cryptocurrency accounting needs, please contact us today.

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