If you are building in crypto, chances are the last thing you want to worry about is accounting and your back office.Tactic Team
If you are building in crypto, chances are the last thing you want to worry about is accounting and your back office. It can be complicated to figure out how to set-up and run these functions, but neglecting to do so can create additional headaches for your organization.
To help your business avoid penalties and enable yourself to pour your energy into growing your business, let’s talk about what exactly crypto accounting is, the main issues your business might face, and how you can set up your business for success by using crypto accounting software like Tactic.
Crypto accounting is the process of reflecting the transactions your business makes on its general ledger, which requires a different and separate process from cash transactions.
Generally accepted accounting principles (GAAP) consider cryptocurrency to be an intangible asset that is recorded at cost, rather than at its market value at any given time. This means that if there is an impairment (or reduction) in the value of the cryptocurrency the company must record that loss. At the same time, should the value of the cryptocurrency increase above cost, the company would not record that as a “profit” until the currency is bought or sold.
Since crypto transactions are reflected on the blockchain and not in your enterprise resource planning (ERP) software, wrangling the correct transaction data, reconciling and categorizing them correctly, and analyzing your portfolio can be a tricky, time-consuming, and error-prone process.
Here are 3 common issues with crypto accounting:
The most common problem for web3 founders and their accountants is dedicating time and resources to manually tracking transactions in spreadsheets and matching them to web-based block explorers like Etherscan or PolygonScan.
Matching wallet addresses, looking up transaction hashes, and sifting through nested transactions can be mind-numbing and can divert significant amounts of time away from growing your business.
Being able to categorize transactions in a systematic way is the only effective way to make sure your bookkeeping is error-free. It can also be tricky to make sure that your invoices tie to the correct transactions and that you are able to quickly identify similar transactions using categories or memos.
For example, one outbound Ethereum transaction can trigger multiple events that need to be accounted for separately: there could be a transfer of Ethereum, a gas fee paid to execute the transaction, and a gain/loss associated with the transaction. If there is an associated loss for any of those transactions, appropriately categorizing and reporting this could lead to a tax write-off and save you money!
While crypto transactions are public and can be viewed on the blockchain, it is often difficult to view the state of your total crypto portfolio in one place, and understand balances and gains/losses across different wallets and asset types.
This capability can be important from both an accounting and operational perspective and can be critical for audit preparedness and understanding where you can make business improvements.
At Tactic, we are in the business of saving you time. If your team is experiencing these problems firsthand, crypto accounting software like Tactic has the features you need to effectively deal with them and keep your books straight. Contact us at www.tactic.com to learn more.
The information in this article is for general informational purposes only and does not constitute investment, accounting, tax or legal advice.