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Acctual Team
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Jun 12, 2024
Managing crypto transactions in your accounting software can be tough. Consider paying an important invoice with your crypto holdings, but your software can't handle it. How can you fix this problem? This crypto accounting guide offers simple tips to help you pay invoices using crypto without any issues and explains FASB crypto rules for your accounting practices.
Acctual's crypto accounting software is a tool that will help you achieve your goal of paying invoices through crypto.
Table of Contents
Accounting Treatment Of Crypto Background
The scope of FASB's new crypto accounting rule covers all entities holding certain crypto assets, including:
Public and private companies
Not-for-profit entities
Entities across all industries
This update aims to provide more decision-useful information to investors and better represent the economics of a holder's investment in crypto assets.
Fair value calculation in FASB's new crypto accounting rule
FASB's new crypto accounting rule requires entities to calculate the fair value of certain digital assets. The fair value is determined based on:
Exchange prices
Dealer quotes
Alternative pricing sources
Valuations performed by third-party service providers
The new rule also includes guidance on when an investment in a digital asset should be accounted for under ASC 946, ASC 820, or other guidance.
The FASB update for crypto accounting represents a significant shift in how entities account for crypto assets. It provides more relevant information to investors and reflects the economics of holding these assets.
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Scope Of The Crypto Assets Concerned With FASB Update
The FASB update covers digital assets that meet specific criteria:
They must be intangible assets under US GAAP.
They do not confer enforceable rights to underlying goods, services, or assets.
They exist on a distributed ledger using blockchain technology.
They are secured using cryptography.
They are fungible.
They are not created or issued by the reporting entity or related parties.
The update's scope includes all entities, regardless of public, private, or not-for-profit status or industry. Certain proposals within the update may not apply to all entities, such as some acquisition cost decisions that do not pertain to certain entities that use industry-specific US GAAP. Notably, ASU 2023-08 does not cover other crypto assets like:
Non-fungible tokens (NFTs)
Stablecoins that qualify as financial instruments
Wrapped tokens
Simplify Crypto Transactions with Acctual
Acctual is crypto accounting software for businesses and freelancers transacting in digital assets. It simplifies accounts payable and receivable, enabling easy invoicing and payments in crypto. Our flexible options allow you to pay in crypto while vendors receive fiat or receive crypto while clients pay in fiat. We also integrate with your accounting system, saving you time on month-end reconciliation.
Key features include:
Multi-level approvals
Fiat-to-crypto and crypto-to-fiat payments
Built-in AML screening
Crypto invoice links
Automatic payment notifications
You can simplify your financial operations with our smooth:
AP/AR process
Automatic bookkeeping
Built-in internal controls
Compliant and vendor-friendly platform
Flexible payment options
Book a call with our team today to learn how you can pay bills and send invoices in crypto with our crypto accounting software!
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Summary Of FASB Crypto Fair Value Update
The recent FASB update on fair value measurement of digital assets has significant implications for companies working in the crypto space. Under the proposed ASU, assets within the project's scope will be subsequently measured at fair value rather than cost-less impairment. This means that financial reports should reflect the current market value of any crypto rather than its historical low during the reporting period. Fair value refers to the exit price in the principal market.
The Concept of Fair Value in Cryptocurrency Accounting
Companies can define their preferred schedule for automated evaluations based on real-time market data from their principal market. Fair value allows companies to assess the value of their crypto in a current market context. This shift from cost-less impairment to fair value measurement is a significant change.
Determining the Principal Market in Cryptocurrency Accounting
One key issue arising from the FASB update is defining the principal market. The FASB has not provided specific guidance on this issue, leaving it in the hands of individual companies and their financial advisors. Companies must decide how to identify the principal market based on existing guidance in ASC 820.
Challenges in Fair Value Measurement in the Crypto Space
Several factors must be considered while determining fair value in the crypto industry. Unlike traditional markets, crypto markets do not have closing hours and run 24/7. There are multiple markets for digital assets, and these markets may not have the same price at any given time.
Fair Value Accounting for Accurate Reporting, But Challenges Remain
The FASB update on fair value measurement of digital assets significantly changed how companies report their crypto holdings. The transition to fair value measurement has allowed companies to assess the current market value of their crypto assets accurately. However, the principal market and accurate, fair value calculations remain challenging in the crypto space.
What Does This Mean for You and Your Business?
Businesses that deal with crypto assets will face significant changes in their accounting practices.
Separate Presentation on the Balance Sheet
The main impact of the update is that entities are now required to present in-scope crypto assets measured at fair value separately from other intangible assets on the balance sheet. This separation is necessary due to the difference in measurement bases between crypto assets and other intangible assets. For instance, crypto assets within the project's scope are measured at fair value, while other intangible assets are measured at cost-less impairment.
Separate Disclosure for Fair Value Changes
Changes in the fair value of crypto assets must be presented separately on the income statement from changes in the carrying amount of other intangible assets. This separation ensures a clear distinction between the financial impact of crypto assets and other intangible assets on the income statement.
Proper Classification for Operating Activities
ASU 2023-08 also requires entities to classify cash receipts from the sale of crypto assets received as noncash consideration in the ordinary course of business. This classification is crucial when these receipts are converted nearly immediately into cash and recorded as cash flows from operating activities.
Entities will also be subject to additional disclosure requirements regarding:
Their significant holdings
Reconciliation of crypto assets held during the period
Any restrictions on the sale of crypto assets
These additional disclosures aim to provide stakeholders with more transparent information about a company's involvement with crypto assets.
Compliance Timeline and Adoption Considerations for ASU 2023-08
Businesses must use a modified retrospective adoption approach, recording a cumulative effect adjustment to equity at the adoption date. ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. With these changes, businesses dealing with crypto assets must prepare to adapt their accounting practices to comply with the new FASB standard.
Tax Implications Of The FASB Update
While this update fulfills accounting and audit requirements, it may not align with tax requirements. In the United States, the IRS considers crypto assets like Bitcoin as property, which means that a capital gain or loss for tax purposes is only realized when Bitcoin is used or disposed of.
This difference in timing between GAAP and tax reporting can result in a deferred tax asset or liability. Any deferred tax assets must then be assessed for a valuation allowance. Accurately recording and tracking the cost basis of any crypto a company uses or holds is crucial to meeting accounting and tax requirements.
Pay Your Bills In Crypto With Our Crypto Accounting Software Today － Book A Demo To Learn More
Acctual is crypto accounting software for businesses and freelancers transacting in digital assets. It simplifies accounts payable and receivable, making it easy to pay bills and send invoices in crypto. Our flexible options let you pay in crypto while vendors receive fiat, receive crypto while clients pay in fiat, or receive fiat while clients pay in crypto. We also integrate with your accounting system, saving you time on month-end reconciliation.
Key features:
Multi-level approvals for bills
Fiat-to-crypto and crypto-to-fiat payments
Built-in AML screening
Crypto invoice links
Automatic payment notifications
With our smooth AP/AR process, automated bookkeeping, built-in internal controls, with flexible payment options, you can simplify your financial operations with us.
Book a call with our team today to learn how you can pay bills and send invoices in crypto with our crypto accounting software!
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