How are cryptocurrencies accounted for?

Although currently, only 10% of Spaniards have cryptocurrencies, 38% consider that cryptocurrencies are the future of payments on the internet, and 37% are the future of investments, according to ING’s Annual Mobile Banking Report.

They are, therefore, an increasingly prevalent asset, used in a variety of ways, including to pay for products and services and to invest and earn a return. As a consequence of the above, it is essential to know what treatment cryptocurrencies have in accounting. In this article, we will tell you all the details.

How are cryptocurrencies classified from an accounting point of view?

From an accounting point of view, cryptocurrencies are an asset. Assets are defined as goods and rights and other resources controlled economically by the company, resulting from past events, from which the company is expected to obtain benefits or economic returns in the future.

Therefore, cryptocurrencies meet the definition of an asset. On the other hand, we can include cryptocurrencies in four types of assets:

• Financial instrument. Based on the General Accounting Plan, for cryptocurrencies to be considered a financial instrument, it is necessary that there is a contract between the entity that has the cryptocurrency and another party in which an obligation arises that is in the form of a financial liability and that may be settled using own equity instruments.
• Cash or other equivalent liquid assets. The following are considered cash: the treasury deposited in the company’s cash register, the bank demand deposits, and the financial instruments convertible into cash.
• Intangible fixed assets. The General Accounting Plan considers that non-monetary assets without physical appearance can be economically valued are intangible fixed assets.
• For cryptocurrencies to be considered stocks, they must meet the requirement that the entity acquires them to trade with them, which is the primary purpose of its activity.

As a consequence of the above, from an accounting point of view, the treatment of cryptocurrencies may be different depending on the cases:

• In the event that the corporate purpose of the company is the sale of cryptocurrencies in exchange for a commission, the cryptocurrencies must be considered as stocks since they will be sold for the ordinary activity of the company.
• In the event that cryptocurrencies are acquired to form part of the company’s fixed assets, they will be accounted for as fixed assets as long as they remain in the company permanently.

Valuation of cryptocurrencies classified as intangible assets

If cryptocurrencies are classified as intangible assets, the following criteria must be followed for their valuation:

• Initial assessment. The items included in property, plant and equipment will be valued at their cost, which can be the acquisition price or the production cost. In the case of cryptocurrencies, there may be three forms of acquisition, which influence the initial valuation. We see it below:
  • Acquisition of cryptocurrencies through mining. In this case, it is necessary to establish the production cost that will include all the expenses derived from the creation of production and preparation of the asset for its start-up.
  • Acquisition in the secondary market. In this case, we are faced with cryptocurrencies bought in a secondary market through an exchange house, for example. For the initial valuation of the cryptocurrencies, in this case, the acquisition price and the expenses that have been paid about the operation are considered. For example, if a company buys 5 bitcoins at a price of € 50,000 / bitcoin, the initial valuation of the bitcoin and the accounting entry to be made is as follows:

• Payment with cryptocurrencies for goods and services. In this case, the company acquires cryptocurrencies (intangible assets) in exchange for the delivery of non-monetary assets (goods or services). From an accounting point of view, this operation is considered a swap. For example, a company sells furniture valued at € 197,500.00 to a third party, passing on a VAT fee of € 52,500.00 (197,500 + 52,500 = € 250,000) and accepting as payment, the delivery of the 5 bitcoins that trade at € 50,000 / bitcoin. The accounting entries would be the following:

Furniture sale:

Valuation of cryptocurrencies classified as stocks

As we have seen before, if cryptocurrencies are intended for sale as a result of the normal activity of the company, they are classified as stocks. In this case, the valuation is carried out as follows:

• Initial assessment. It is carried out according to its acquisition price or production cost. In this case, if the cryptocurrencies are obtained as a result of mining work, they are valued according to their cost of production. In the event that cryptocurrencies are purchased from third parties, they will be valued according to their acquisition cost.
• Subsequent assessment. Inventories are considered not subject to amortization, and impairment corrections should be made.
• Come down. Cryptocurrencies that qualify as stocks are intended for sale, and their withdrawal will occur when they are sold in exchange for legal tender.

To correctly classify cryptocurrencies in your accounting, it is important to have the help of experts who advise you both from an accounting point of view and a tax point of view.